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Report from
Europe
European plywood sector pushes
through pandemic
Expectations of the impact of the Covid-19 pandemic on
the European plywood sector turned out to be worse than
the reality.
Nevertheless, overall trading levels in the first half of 2020
are reported sharply down. Some fear business may not
return to pre-crisis levels until a vaccine is found for the
virus and there is concern among importers over the longer
term repercussions of the crisis for European national
economies, particularly for employment, with predictions
that Brexit may add to market stresses.
EU and UK plywood importers and distributors took a
range of steps to comply with social distancing and other
health guidelines throughout the lockdown, it¡¯s reported
that most of the sector did keep trading.
¡°We divided the workforce into teams, working several
days on, several off, both in order to meet distancing rules
and so that, if anyone fell sick, we¡¯d have a back-up,¡± said
a director of one leading EU importer.
Another company said its strategies differed across the
national markets it services. ¡°In France at the height of the
pandemic and lockdown, we were down at one point to
around to around 10-15% of normal activity, so reined in
operations accordingly. In the UK only our main directors
came in, while everyone else worked from home, but in
the Netherlands, Belgium and Germany we pretty much
continued as normal,¡± they said.
A major UK importer distributor said they had furloughed
just six people out of a workforce of 90. ¡°Our offices were
big enough to maintain distancing rules and we adapted in
other ways,¡± they said.
¡°For instance, delivery drivers stayed in vehicles to
minimise contact and we went even more paperless,
sending delivery and order notes to tablets and
smartphones. It¡¯s really demonstrated the value of new
technology and digitization, with staff and supplier
meetings online and sales communicating with customers
remotely, all with no appreciable adverse impacts on
business. We¡¯ll probably stick with some of these
approaches post-pandemic. ¡±
The fall in turnover in the first six months of 2020 varied
according to importers¡¯ product mix and national markets,
with estimates ranging from 15% to 35%. However, some
had expected a bigger contraction.
¡°Sales falling by between fifth and a third obviously is bad
news, but mid-March into April, when the health crisis
was at its peak and the media full of dire predictions, we
discussed contingences for a more serious situation,¡± said
one company.
A multi-national importer/distributor reported the French
market through April into May down 75%, the UK 65%
and Belgium 35%, but business in the Netherlands and
Germany was significantly less affected. ¡°The Germans
and Dutch lockdowns either weren¡¯t as severe, or
businesses coped better,¡± they said. ¡°The result was that
most customers were able to carry on near normally.¡±
One company said its sales in these two countries had
enabled it to maintain first half construction sector
business overall at 90-95% of 2019 levels. ¡°We actually
saw surprisingly few site closures generally and also the
building sector had benefited from a mild winter, so
ongoing projects hadn¡¯t been interrupted or building starts
delayed due to bad weather. As a result, the sector went
into the pandemic period at strong levels of activity.
Demand from customers in infrastructure also held up
well. Projects were possibly brought forward by
contractors to take advantage of lower traffic levels and by
local and central government also to help maintain
economic activity.¡±
Merchants and small to medium sized distributors were
the mainstay of another importers¡¯ business from March
through June, particularly those servicing smaller builders
and private customers.
¡°Some bigger distribution chain customers and larger
construction contractors we service curtailed operations,
but traditional merchants were busy, as were builders
working on smaller projects, repair and refurbishment,
plus the DIY sector. Consumers clearly took advantage of
lockdown to do home improvements,¡± said an
importer/distributor.
UK importers painted a similar picture, with DIY trade
holding up particularly well. One had also seen strong
demand from retail and hospitality for plywood and OSB
to board up locked down premises.
UK construction activity varied from site to site, some
closing, others continuing, operating to health guidelines.
Most interruption was reported in Scotland where the
sector was hit by the strictest lockdown rules.
In common with most continental counterparts, a UK
company said their worst affected areas were packaging,
shop fitting, the exhibition sector and hospitality
refurbishment.
¡°Some shops have used it to refurb, but the sector
generally didn¡¯t go into lockdown in a strong position, due
in particular to online retail growth, so didn¡¯t have the
resources,¡± said the importer.
¡°We¡¯ve also seen a sharp downturn in anything to do with
manufacturing. That includes sales to the automotive
sector, boat building and particularly furniture
production.¡±
Another continental importer described the packaging
business as a ¡®disaster area¡¯ ¨C down at least 50%. ¡°It¡¯s
dependent on transport of goods which, of course, was
severely curtailed,¡± they said.
Serious interruption of Chinese plywood supply to
Europe
On supply, some interruption was reported out of
Indonesia and Malaysia due to the lockdown; some
factories reported to have closed for several weeks, others
reduced output. But the major issue was with the Chinese
product. The combined effects of Chinese New Year and
pandemic saw shipments dry up.
The impact was partially softened by lower demand in
Europe, but companies still report they are coming close to
selling out.
¡°We¡¯d stocked up as usual ahead of New Year. But rather
than the usual two to three weeks hiatus in supply, it was
seven to eight, mid-January to the end of March,¡± said an
importer.
¡°Basically, we cleared our stocks and most customers
were sold out, particularly on film-faced and other
construction and industrial product. Even now, whatever¡¯s
coming in from China is presold and immediately going
out again.¡±
Through May, Chinese and other S.E Asian supply was
reported to have recovered and combined with slight
weakening of the yuan, the consequence, said an importer,
is that there is now more ¡°flexibility on price¡±. ¡°It¡¯s
generally not substantial, although there are some
suppliers hungrier for business than others and open to
offers,¡± they said.
Despite the supply issues, bar moderate weakening in
Chinese product more recently, importers report S.E.
Asian prices have been stable over the last few months,
with just ¡°minor adjustments¡±.
The supply of Brazilian elliottis and Russian birch
plywood, however, has been on a downward trend, the
former falling 20 to 25% over the first half of 2020, the
latter 10%.
¡°Combined with the weakening of the Brazilian real,
which, despite slight recent recovery early June was still
25% to 30% lower than at Christmas, this left European
importers who bought January and February, when prices
were actually increasing, with expensive stocks they¡¯ve
had to discount,¡± said one company.
¡°There are signs prices have bottomed out, but, with the
pandemic worsening in Brazil and their domestic market
contracting, you never know.¡±
Russian price cutting was described as an ¡°over reaction to
market conditions¡±. ¡°[Russian] suppliers have had
problems. First, they had a mild winter and log shortages,
then came the pandemic and contraction of the building
interiors market, which is significant for them,¡± said an
importer.
¡°But Russian suppliers seemed to get into a race for the
bottom. Whether they¡¯ve reached it yet is unclear. These
are big companies which may have room for more cuts. As
with elliottis, it¡¯s meant write offs and particularly bigger
stock-holding importers losing a lot of money.¡±
European plywood imports slump
According to analysis of latest UK Government and
Eurostat statistics, total plywood imports by the
EU27+UK (excluding internal trade) dropped by 16% to
1.58 million cu.m from January through April this year
compared to the same four months last year. This follows
a dip of 5.3% to 4.4 million cu.m for the full year in 2019.
EU27+UK tropical hardwood plywood imports, including
both direct from the tropics and from non-tropical
countries, were 137,000 cu.m between January and April
this year, 38% less than the same period in 2019.
EU27+UK tropical hardwood plywood imports from
China from January through April were 59.5% lower at
43,000 cu.m.
Imports of tropical hardwood plywood also declined
sharply from Indonesia (down 34.6% at 38,000 cu.m),
Gabon (down 3.3% at 9,000 cu.m), Brazil (down 43.9% at
4,000 cu.m) and Viet Nam (down 45.8% at 4,000 cu.m).
However imports from Malaysia were up 47.1% at 27,000
cu.m (Chart 1).
In contrast to tropical hardwood plywood, EU27+UK
imports of temperate hardwood plywood were up 3.1% at
815,000 cu.m in the first four months of 2020. Imports of
this commodity from Russia were 4.8% ahead at 410,000
cu.m, from Belarus up 22.7% at 67,000 cu.m, and
Uruguay up 31.9% at 7,000 cu.m.
However, imports of temperate hardwood plywood from
China were down 1.7% at 278,000 cu.m and from Ukraine
down 5.6% at 44,000 cu.m (Chart 2).
EU27+UK imports of softwood plywood declined 27.1%
to 623,000 cu.m in the first four months of 2020. Imports
from Brazil were 30.3% lower at 456,000 cu.m, from
Chile down 20.9% at 54,000 cu.m, Russia down 7.5% at
53,000 cu.m and China down 52.7% at 25,000 cu.m, while
those from Canada rose 77.5% to 8,000 cu.m (Chart 3).
Uncertain outlook for European plywood market
As for the outlook for the European plywood sector,
importers said it remained a difficult call. ¡°There are so
many variables,¡± said one company. ¡°There¡¯s anxiety
about a second spike in Covid-19 in Europe, and we¡¯ve
already seen renewed outbreaks and subsequent localized
lockdowns in Germany.
¡°There¡¯s been consumer confidence and market recovery
from mid-May through June and we see the position
continuing to improve through the summer, but it won¡¯t
take many more such instances for that to be threatened.
There¡¯s talk too of the risk of company failures and
accelerating job losses as government pandemic business
support programmes are wound down, with
unemployment forecast to be a major drag on the
European economy. Then there¡¯s the worry of the course
of the disease elsewhere in the world.¡±
Prospects in construction are also causing concern. ¡°I
think we¡¯ll see an upturn in activity as those projects that
were delayed come back on stream, with more work done
than normal through July and August,¡± said an importerdistributor.
¡°But, as these projects complete, are we going to see new
ones starting? Some governments are pump priming the
sector, with Germany and the UK, for instance, promising
multi-billion infrastructure spending. But not everyone is
going to have that kind of resource.¡±
These concerns are borne out by latest forecasts from
Euroconstruct. It predicts that its 19 member countries in
2020 will see an overall contraction in construction
turnover to €1.5 trillion, the lowest figure since 2015. In
Germany the fall will be just 2.4%, but in the UK and
Ireland could be as severe as 33% and 38% respectively.
While building output will start recovering in 2021,
Euroconstruct predicts that in 2022 it will still only be
back to 2018 levels. Euroconstruct adds that there are
also downside risks to its forecast, the most significant
being the coronavirus and its containment.
Adding to importers¡¯ challenges, they also report greater
difficulty in meeting EUTR due diligence requirements
due to a combination of having furloughed their own
personnel, and suppliers¡¯ offices also being short-staffed,
so processing documentation more slowly. ¡°And EU
competent authorities are making no allowances,¡± said one
company.
Another reported that the Belgian competent authority is
also scrutinizing FLEGT-licensed cargoes more closely.
¡°Whether it¡¯s to do with Indonesia¡¯s proposed then
abandoned move to drop the obligation on companies to
provide legality assurance on timber exports is unclear,¡±
they said. ¡°But it seems excessive.¡±
A UK importer voiced the sector¡¯s consensus about the
immediate future. ¡°Business continues to pick up and
we¡¯re being positive, but it¡¯s going to be challenging. We
think our new norm will be about 15-20% below 2019
business levels; where we were doing £10 million a
month, we¡¯ll now be on £8-8.5 million,¡± they said.
¡°We hope to be proved wrong, but at the moment we can¡¯t
see that changing significantly until a Covid-19 vaccine is
out there.
¡°Then there¡¯s the downside risk posed to us and the rest of
Europe by Brexit. The pandemic has taken months out of
negotiations and the risk of the UK exiting the EU without
a trade deal is reported as very real. On top of the health
crisis, that could be tough to cope with. Our hope is that
they extend the transition period so they can come to a
deal and we only have one crisis to manage.¡±
Brexit ¡®rears its head¡¯ once more
In a recent blog post, the UK TTF Managing Director
David Hopkin notes that ¡°just when we thought it was safe
to go back into work from COVID-19, the lurking beast of
Brexit has reared its head once more¡±.
Mr. Hopkins was responding to issues raised by UK
government announcements on the VAT and trade tariff
regime planned to be implemented in the UK after the
current Brexit transition period has ended, from 1st January
2021, in the event of no deal with the EU ¨C or even in the
event of a deal being reached.
According to Mr. Hopkins ¡°as negotiations continue, the
threat of no-deal Brexit ¨C something everyone said they
wanted to avoid ¨C now looks increasingly likely. Indeed,
there often seems little difference between the deal the
Government wants, and no-deal anyway¡±.
Mr. Hopkins goes on to note that ¡°the issues around this
are multiple and various. None are insurmountable, but all
need to be discussed openly and transparently with
sufficient time to consider all sides of the argument. But,
time and scrutiny are the very things the Government is
keen to avoid in its rush to the finish line.
¡°Already we have seen the Government U-turn on a huge
number of areas where previously we had been given
concrete assurances and thought we had certainty for
example, payment of VAT on imports. Last year, the
Government, in a signed letter from the Chancellor,
assured TTF that importers could continue the same
regime as before and defer payments over time to ease
cash-flow.
¡°In February, the Prime Minister broke this promise,
telling all businesses that VAT would be payable upfront,
in one sum, on all imports. This poses huge problems for
smaller importers. Promises on frictionless trade, tariffs
and other areas of business have gone the same way.
Mr. Hopkins then referred to the discussions the TTF has
held with members on the proposed ¡°UK Global Tariff¡±
published on 19 May. The tariff will apply to all goods
imported into the UK unless the goods come from
countries that are part of the GSP system or from countries
that have a trade agreement with the UK.
Mr. Hopkins was sharply critical of the UK government¡¯s
¡°proposed new tariffs for engineered timber and plywood¡±
noting that ¡°we were previously told these would never be
imposed¡± and that ¡°we will be looking at how we can
overcome this and other issues within the post-Brexit
regime¡±.
While that is the TTF perspective, other observers have
been more generous to the UK government stance on
tariffs, suggesting that, at this stage of trade negotiations
with the EU and other partners, rather than unilaterally
removing tariffs now, it makes sense for the UK to keep
the flexibility to cut tariffs in future.
Furthermore, the tariffs the TTF refer to are not ¡°new¡± in
the sense that they have always been imposed on supplies
from outside the EU. What is ¡°new¡± is that UK imports
from EU countries would now be subject to the same
constraints.
While disruptive to existing UK supplier relationships
with the EU, it would enhance the competitiveness of
other suppliers to the UK, including in the tropics, who
would be treated on a level playing field.
For this reason, non-EU suppliers of those wood products
currently subject to tariffs for import into the EU ¨C which
include veneer, plywood, other laminates, panels,
marquetry, doors and windows, picture frames, bamboo
and rattan furniture, and wood furniture components ¨C
would all benefit in the UK market in the event of a ¡°no
deal¡± Brexit, even if the UK were to simply adopt the
EU¡¯s existing tariff schedule.
Of course, this benefit is only in terms of relative
competitiveness and takes no account of the potentially
serious and detrimental hit to the overall economy of the
UK, and to a lesser extent the EU, in the event of a no-deal
Brexit. From that best perspective, no-deal is best avoided.
In practice the UK is not proposing to simply replicate the
existing EU tariff schedule, but to adjust it to better reflect
the UK¡¯s own interests. Certain EU industries that the EU
is helping to protect through the tariff schedule have little
or no presence in the UK. The UK can be expected to
either reduce or totally remove tariffs for these sectors.
In practice the UK home-grown wood products sector is
relatively small and narrowly focused compared to many
other European countries ¨C the commercial forest resource
being heavily oriented towards spruce plantations.
The country has a very long tradition of importing to fulfil
its wider wood needs, more so than elsewhere in the EU,
and therefore is likely to be more inclined to reduce wood
import tariffs.
This discussion is academic for quite a few wood
products. The EU already imposes zero-tariffs on all logs
and rough sawn timber, together with all finished wood
furniture, as well as for all types of wood fuel, including
chips, pellets, charcoal, sleepers, tools, shuttering, shingles
and shakes, posts and beams, glulam, tableware and
kitchenware.
For nearly all wood product groups where the EU applies
tariffs, the UK is now proposing either to reduce or
eradicate tariffs for UK global imports. The main changes
proposed are as follows:
The EU tariff of 2.5% that applies to all ¡°sanded¡±
sawnwood would be reduced to zero in the UK.
The EU tariff of 2% specific to tropical hardwood
that is ¡°planed¡± would be reduced to zero in the
UK.
The EU tariff on veneers, which ranges between
3% to 6% depending on degree of processing and
species, would be reduced to zero in the UK.
The EU 7% tariff on plywood, including with
outer ply of tropical hardwood
(4412110/44123190), other hardwood
(44123300/4412400), and softwood (44123900),
would be reduced to 6% in the UK.
The EU 7% tariff on MDF and other fibreboard,
OSB and other particle board would be reduced
to 6% in the UK.
The EU 2.5% tariff on picture frames and similar
products made of tropical wood, would be
reduced to 2% in the UK.
The EU 3% tariff on wooden doors and door
frames, windows and window frames, parquet
flooring panels, which applies to all wood species
including tropical wood, would be reduced to 2%
in the UK.
The EU¡¯s 3% tariff on statuettes and jewelry and
cutlery boxes made specifically of tropical wood,
would be reduced to 2% in the UK.
The EU 4% tariff on wood packing cases, boxes,
crates, box pallets and similar, would be reduced
to zero in the UK.
The EU 5.6% tariff on bamboo and rattan
furniture would be to 4% in the UK.
The EU 2.7% tariff on wooden furniture
components would be reduced to 2% in the UK.
The only wood products where the UK proposes to retain
the existing EU tariff are: laminates and veneered panels
under 441294 and 441299, for which there is a tariff of 6%
or 10% depending on the exact specification; bamboo
plywood which will continue to be subject to a 10% tariff;
and wood marquetry, subject to a 4% tariff.
The UK is not proposing to increase tariffs on any wood
products.
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