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Report from
Europe
European plywood market lucrative, but challenging
At the time of writing, the 63200-tonne dwt Konya was
unloading its cargo of plywood and other wood products at
the UK port of Tilbury. It was the first timber breakbulk
vessel out of Port Klang, Malaysia to London in years and
a sign of the times.
Some European plywood importers report that container
costs out of Asia have started to come off their pandemic
peak. Others, however, say that they are still being quoted
charges which one described as ¡®unreal¡¯. ¡°We¡¯ve recently
been offered rates for a 40ft container of US$15,000 to
US$20,000,¡± they said. ¡°That compares with US$1,500 to
US$2,000 in October 2020. It¡¯s crazy.¡±
Even those who report some softening in container rates
confirm they remain at historically high levels, hence
widespread migration to breakbulk.
The unprecedented inflation in container charges is
principally attributed to the impact of the pandemic on
trading patterns, which has left containers in the wrong
places, with major quantities stacked empty at ports in
consumer countries.
¡°Changes in consumption and shopping patterns triggered
by the pandemic, including a surge in electronic
commerce, as well as lockdown measures, have led to
increased import demand for manufactured consumer
goods, a large part of which is moved in shipping
containers,¡± stated a briefing note on the situation from
UNCTAD. ¡°Carriers, ports and shippers were all taken by
surprise. Empty boxes were left in places where they were
not needed, and repositioning was not planned for.¡±
As the global economy more generally revived when
lockdown restrictions eased, exporters in producer
countries, notably in Asia, found themselves increasingly
short of containers and prices rose accordingly. ¡°There¡¯s
also clearly been an element of profiteering at some
shipping lines,¡± said a plywood importer.
¡°The fact some are quoting container rates at half the
value of the plywood contents is not all down to
availability.¡±
Importers also point out that breakbulk is not a
straightforward alternative, particularly for those who have
not used it before. It involves more administration, the risk
of penalties if cargoes are not at port on time or in the
volumes booked and greater likelihood of product damage
in transit. While considerably cheaper than container
freight, it has also become more expensive.
¡°Breakbulk operators are seeing an opportunity to make
money and their rates have roughly doubled in the last six
months,¡± said an importer distributor.
And transport is just one of the challenges facing the
European plywood import trade. Over the last three
months, they report, global consumption has continued to
gather pace, given added impetus by government
economic stimulus measures.
At the same time production in many parts of the world
remains constrained by lack of personnel due to Covid-19
infection or isolation, plus pandemic safe work practices.
Raw material supply is also cited as an issue for some
manufacturers. Product prices have consequently
continued to climb.
¡°We¡¯re getting good margins, but obtaining product and
managing allocation, keeping your key customers covered
and reasonably happy despite the price rises, has made it
an increasingly stressful business,¡± said an importer
distributor. ¡°It¡¯s lucrative, but more challenging than at
any time we can remember.¡±
Some European importers expected plywood demand to
ease somewhat over the summer season. But, with
tourism still depressed by the pandemic, others say they¡¯re
not expecting to see the usual degree of holiday
slowdown. The general consensus is that for the time
being consumption remains on an upward curve. The
European DIY and home improvement market is cited as a
key plywood demand driver, as it has been since summer
2020.
¡°While pandemic controls are being relaxed, large
numbers of people are still working from home at least
part of the time, and that¡¯s expected to be a permanent
state of affairs for many. As a result they¡¯re spending more
on improving and enlarging their properties. Loft
conversions and garden office building are at record
levels,¡± said a UK-based importer.
¡°Spending on holidays, which was absolutely decimated in
2020, also continues to be depressed this year, leaving
more funds for investing in homes and gardens. The UK
Construction Products Association stated that in normal
times UK holiday expenditure alone exceeds £60 billion a
year. So there¡¯s a lot of surplus money around.¡±
Demand from new build is also reported to be looking
increasingly healthy, not least due to fiscal support from
governments which see construction as a key engine of
economic recovery. This is borne out by the June report
from Euroconstruct. It says that European construction
recovery is faster than expected and much of the loss in
output due to the pandemic is expected to be recovered in
2021. It forecasts average building growth in the 19
Euroconstruct countries this year to be 3.8%, following
last year¡¯s 5.8% contraction.
While recovery rates will vary from country to country,
with Ireland and Hungary expected to show some further
decline in 2021, this puts the industry overall on track to
reach pre-crisis levels of activity in 2022 latest.
Besides construction, importers also report good growth
in demand from joinery, furniture manufacture, packaging
and boat building. ¡°It¡¯s pretty much across the board,¡± said
one.
So far, the import sector reports little market push back on
price. ¡°It can¡¯t last forever, and if we¡¯re not seeing some
more significant price easing in two or three months, there
may be more resistance, especially if there¡¯s any degree of
economic slowdown,¡± said one importer. ¡°So far though,
customers accept that this is a market-wide phenomenon.
They¡¯re doing good business, so they¡¯re willing to pay.¡±
Despite logistical difficulties, added to which are longer
manufacturing lead times, most importers are reported to
be ¡®well covered for purchases¡¯ over coming months.
¡°But stocks on the ground are still very short, there¡¯s little
in the way of a product buffer,¡± said an importer.
¡°Whatever comes in is delivered immediately.
Nobody is saying, why don¡¯t you hold on to our shipment
and we¡¯ll take it in four to six weeks. Customers are
waiting for vessels to arrive to receive their cargoes. They
want it straight away.¡±
In terms of source of supply, China is reported to be
keeping up with demand, albeit with longer lead times, but
prices have been rising increasingly steeply.
¡°In the first quarter increases were moderate, but in Q2
we¡¯ve seen rises of 15-20% F.O.B.,¡± said an importer.
¡°Compared to Brazilian, that¡¯s not too bad, but when you
factor in freight rates it makes quite a difference.¡± Chinese
producers are also reported to have become increasingly
assertive.
¡°Some are trying to renegotiate outstanding contracts,¡±
said an importer. ¡°For orders placed April/May they¡¯re
maybe asking for another US$15-20 per cube.
They say they¡¯re facing rising costs for raw materials,
including glues, logs and veneer.
If you don¡¯t pay, you risk the plywood not being produced
and, if you¡¯ve booked the breakbulk ship space, you then
risk incurring dead freight and demurrage charges from
the shipping line.¡± Chinese ports are also reported to be
congested with breakbulk vessels and shipping lines are
asking for surcharges to cover added waiting times.
Brazilian price inflation is attributed primarily to the
combination of the impact on manufacturing of the severe
Covid-19 situation in the country, plus huge demand from
the US construction market.
¡°For standard 18-20mm elliottis plywood we were paying
US$250-300/cu.m last October/November. Lately the
asking price from Brazil has been US$500-600/cu.m.
Basically they¡¯ve doubled up,¡± said an importer. ¡°Unless
they desperately needed a specific product, European
importers more or less stopped buying Brazilian in
March/April this year when prices reached this level.
More recently we¡¯ve heard that there have been shipping
line issues between Brazil and the US and we¡¯ve had more
spot volume offers from Brazilian producers at slightly
lower prices. Whether this is the start of a wider
downward trend remains to be seen.
Despite these shipping problems, the US remains a
booming market, the government is injecting more money
into the economy and, even at recent high price levels,
Brazilian plywood remains the cheapest Americans can
get for the quality.¡± Brazilian prices are in turn said to be
helping push up Chinese.
¡°People who used to buy volume from Brazil have been
trying to replace it from China, adding further inflationary
pressure to their products,¡± said an importer distributor.
Russian birch plywood supply is reported as tight, sold
until September, and prices have also reached new heights.
¡°Yesterday we were asked to pay £62 per board for 18mm.
At the start of last year pre- pandemic it was £17,¡± said a
UK importer.
Adding a further market challenge is the preliminary antidumping
duty imposed on Russian plywood by the EU on
June 15. This has been set at 16% DAP (delivered at
place) and will remain in place until December, when the
EU will decide on the rate going forward.
¡°This has also led more European buyers to look to Asia,
but freight rates are limiting the extent to which it¡¯s viable
to switch from Russian,¡± said an importer-distributor. But
for the cost of containers, importers thought Indonesian
producers, in particular, would be able to capitalise on the
anti-dumping duty and substitute Russian film-faced with
their products.
¡°We saw an increase in Indonesian timber imports into
Europe from 2016-2019, partly due to rising consumption
generally, but we also feel to an extent due to FLEGT
licensing and the fact it has a green lane through the
EUTR,¡± said an importer. ¡°If it wasn¡¯t for the container
rates, they could potentially now have a real opportunity to
replace Russian film-faced.
With quotes on containers from Indonesia at US$13,000-
15,000, however, it isn¡¯t a viable proposition. Switching to
breakbulk on Indonesian is also problematic. To make it
feasible you need shipments of 1,000cu.m to 2,500 cu.m.
That¡¯s OK in China, but more difficult to organise in
Indonesia. Delivery to port is less reliable and you risk
incurring charges from shipping lines if cargo doesn¡¯t
show. We¡¯ve got outstanding orders from Indonesia set for
departure in June, which we¡¯re now told won¡¯t be shipped
until the end of September. We¡¯re hearing producers are
facing log shortages too.
Clients are not really interested in placing orders if they¡¯re
going to face three month delays, or possibly longer. So
Indonesia has potential to be an interesting partner for us,
but with this combination of negative factors, it isn¡¯t the
attractive option it could be. Things could change. If
container rates come down to US$7,500, the dollar doesn¡¯t
get too strong and, with the EU anti-dumping duty on
Russian in play, then Indonesia could be in business. But
there¡¯s a lot of what ifs and question marks there.¡±
Looking further ahead, some European importers
anticipate Russia¡¯s log export ban, set to come into force
in the New Year, having plywood market repercussions.
¡°It shouldn¡¯t affect production in Europe unduly, as its
Russian birch log imports are limited,¡± said an importer.
¡°But China imports huge volumes of logs from Russia in
all species, including birch. So unless the two strike a
bilateral deal, Chinese manufacturers may face a raw
materials challenge and we could see further pressure on
their production and prices.¡±
The option of plywood importers buying European
product rather than expensive imports from elsewhere has
been limited by manufacturers¡¯ capacity. ¡°European prices
have also been rising,¡± said an importer-distributor.
¡°We¡¯ve bought a little Polish recently, but pricewise,
they¡¯ve also followed the international trend.¡±
An added issue for UK businesses has been fallout from
Brexit. They report increased transport costs from
mainland Europe, with haulage companies upping rates to
offset the increased time taken by new port and customs
procedures.
There are issues too trading with Northern Ireland and
Ireland. Under the UK¡¯s EU exit deal, Northern Ireland
remains in the EU single market. That means plywood and
other timber products from the British mainland imported
into Northern Ireland have to undergo EU Timber
Regulation due diligence.
¡°Also if we ship goods to Northern Ireland for transit to
Ireland, they incur further duty, even if we¡¯ve paid duty on
them entering the British mainland,¡± said a plywood
company with sites in England and Northern Ireland.
¡°There are ways around this, but it really isn¡¯t a
satisfactory arrangement.¡±
European plywood imports rebound strongly since
September last year
Latest analysis of Eurostat figures underlines the recent
volatile conditions in the EU and UK plywood trade. Total
EU+UK imports from outside the rose to a peak of 4.8
million cu.m in the 12 months to March 2019 before
declining sharply to a low of 4.1 million cu.m in the 12
months to March 2020.
The decline in imports predates the first Covid-19
lockdown in Europe and was due to weakening
construction sector activity and overstocking in the prepandemic
period. The rebound in construction and DIY
activity after the first lockdown period is mirrored by a
sharp rise in imports starting in September last year and
continuing until May this year (Chart 1).
Overall EU+UK plywood imports declined 2.9% to 4.3
million cu.m in 2020 but rose 5.1% from January to May
2021 compared to the same period the year before to 3.8
million cu.m. Following a fall of 11.8% in 2020,
hardwood plywood imports from the tropics in the first
five months of this year were up 11.5% to 122,000 cu.m,
while tropical hardwood plywood imports from China,
after contracting 30.3% in 2020, rose 15.3% to 72,000
cu.m.
Looking at individual tropical plywood suppliers, EU and
UK imports from Indonesia from January to May 2021
were up 7% at 53,000 cu.m, from Malaysia 14.8% at
35,000 cu.m, Gabon 16% at 16,000 cu.m and Thailand
122.8% at 4,000 cu.m, while those from VietNam were
down 23.4% at 4,000 cu.m. Those from Morocco were up
43.7% at 7,000 cu.m and from Brazil 2.1% at 5,000 cu.m
(Chart 2).
In the first five months of 2021, temperate hardwood
plywood imports from China were up 16.5% at 428,000
cu.m, while those from Russia increased 8.3% to 542,000
cu.m and from other non-tropical countries 14.7% at
172,000 cu.m (Chart 3).
Underlining the European shift away from Brazil due to
the rise in prices triggered by US demand, Brazilian
softwood plywood imports dropped 19.5% from January
to May 2021 to 439,000 cu.m.
Softwood plywood imports from other countries were up
28.6% to 261,000 cu.m, with those from China ahead
48.7% at 43,000 cu.m (Chart 4).
Heat expected to come off the plywood trade in second
half of 2021
The outlook for the broader marketplace according to
European plywood importers is for little change from
current trading conditions over the next few months. But,
with some qualifications, there¡¯s a feeling the heat could
start to come off the trade heading into Q1 2022 and
possibly sooner.
¡°We¡¯re seeing raw materials costs across all industries, not
just wood products, at unprecedented levels due to the
combination of recovering demand and continuing
production restrictions due to the pandemic,¡± said an
importer.
¡°Estimates are that this has pushed the cost of building the
average home in Europe up 25%, for instance. So families
who previously were looking at spending €400,000-
€500,000 on a house are now having to find €500,000-
600,000. That¡¯s going to have repercussions in financing
and beyond the medium term it¡¯s not sustainable. Add in
government stimulus measures winding down and we
wouldn¡¯t be surprised to see a slowdown early in the New
Year.¡±
Another importer distributor generally agreed. ¡°The
unknown factor is the course of the pandemic. It may yet
put more pressure on prices and logistics,¡± they said.
¡°But there are signs of the market anticipating supply and
demand moving more into line and prices coming off their
peak.
Our customers are generally bought up for the next three
months and business is increasingly hand to mouth. From
October there¡¯s more hesitancy, as people don¡¯t want to
commit that far ahead, then see prices fall and have to
write off expensive stock.
There is already talk of price corrections in Brazilian and
Russian. The hope is, of course, that we get a gradual
adjustment, rather than prices that have doubled over the
last 18 months, halving overnight. That could really
destabilise the market. We¡¯ll just have to wait and see and,
in the meantime, keep business tight, keep customer
communications open and not over commit.¡±
Private sector confronts Paris Olympic Committee on
exclusion of tropical timber ¨C the story continues
In the April 16-30 2021 ITTO Market Report mention was
made of an open letter signed by several tropical timber
trade and industry associations sent to the Paris Olympic
Committee (SOLIDEO) Executive Director General
Nicolas Ferrand protesting the ¡°Cahier de Prescriptions
d¡±Excellence Environnementale¡± (Environmental
Excellence Prescription) which prohibits the use of
tropical timber in works related to the Olympics.
The letter can be found at:
https://www.atibt.org/files/upload/news/Courrier_SOLIDEO_VEn.pdf
The ATIBT, in its News Flash of 30 July, has made
available the response received from SOLIDEO which
effectively dismisses the argument put forward by the
organisations that presented the request for a review of the
decision to exclude tropical timber for construction of
Olympic facilities.
The response from SOLDEO can be seen at:
https://www.atibt.org/files/upload/news/SOLIDEO/SOLIDEO_answer.pdf
The ATIBT writes ¡°ATIBT and the signatories of the
letter will continue their actions to defend the use of
sustainable and ethical construction products. We
therefore reiterate our request for a meeting with the
SOLIDEO teams to find now a solution that would satisfy
the integration of this abundant and sustainable supply into
the construction of the infrastructure of the Paris 2024
Summer Olympic Games.
In this sense, leading companies involved in the
construction of the Olympic Village have expressed their
regret at not being able to offer tropical and boreal wood
products that meet technical, aesthetic and ecological
requirements.
ATIBT is currently exchanging with the authorities of
various wood-producing countries in the tropical regions
(Cameroon, Gabon, Republic of Congo, Malaysia) in
order to organise a diplomatic mission to France¡±.
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