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Report from
Europe
Slow sales and depressed prices the challenges for
European plywood sector
European plywood businesses describe their market over
the last year as being characterised by slow sales and
depressed prices. The predicted lowering of inflation and
interest rates through 2024, they say, should help ease
pressures. However, on the downside tougher times are
predicted in the construction sectors of leading European
economies.
At the same time, driven in part by terrorist attacks on
shipping in the Suez Canal, freight rates, which fell
significantly post-Covid, have been on the rise again. So,
the jury is out on whether the year ahead will see any
marked improvement in the plywood trade.
One plywood importer/distributor described 2023 as a
‘very miserable time’ for the trade. “We experienced an
overall decline in demand in 2023 of about 25% - which
was bad for your health as well as the business, it was just
very tough,” they said. “At the same time our prices fell
20-25%.
It was the opposite to our experience in the pandemic
when we saw some of the highest prices ever. In 2023 we
saw some of the lowest. Businesses were obviously
desperate to turn stock into cash and slashed prices
accordingly. So, we were in a situation where interest
rates were on the rise and margins were being significantly
squeezed. That’s essentially a recipe for disaster.”
Another importer said that they’d seen demand hold up
better from the packaging and furniture sectors, but their
sales into construction continued to fall through 2023.
“The building industry is not in a good place currently,”
they said. “Inflation, high interest rates and a generally
weaker European economy, which in October was
reported not to have grown in three of the four previous
quarters with little sign of a return to growth any time
soon, have resulted in home buyers and firms being more
reluctant to invest in new premises.”
This downbeat perspective for building from the trade is
borne out by the latest Euroconstruct analysis which
estimates that European construction output fell 1.7% in
2023, a marked turnaround from 2022 when it rose 3%.
Looking ahead Europe’s construction sector is set to face
continuing tough times through 2024 against the backdrop
of a continuing sluggish economy.
The EU’s own economic forecast predicts GDP growth of
just 0.9% next year, after achieving only 0.5% in 2023,
while the UK Office for National Statistics reports that UK
growth was just 0.1%, with the Bank of England
predicting this will only creep up to 0.25% this year.
Given these headwinds, Euroconstruct forecasts that
European construction output will contract by 2.1% this
year.
The UK Construction Products Association Winter
Forecast predicts growth in UK building in 2024, but by
only 0.6%. This follows a contraction of 4.7% in 2023.
“Both private housing and private housing repair,
maintenance and improvement are forecast to be the worst
affected by the prevailing economic conditions of
flatlining growth, stubborn inflation and interest rates
remaining [relatively high] throughout 2024,” said the
CPA.
This downbeat perspective is shared by
ResearchAndMarkets.com, with its recent report on the
sector stating that ‘European construction continued to
underperform the global market in Q4 2023 and Q1 2024’.
Looking at lead European economies, it said that the high
interest rate environment [falling demand] and soaring
construction energy and other costs had resulted in
‘significant casualties’ among building companies across
Europe. “Data from the UK government’s Insolvency
Service, reveals that in the year to December 2023, 4,378
construction firms became insolvent,” it states. “This was
an increase of 5.1% on the year to December 2022, and a
36.0% increase on 2019 with the trend expected to
continue in the short-term.”
The ResearchAndMarkets.com report said the picture was
similar in Germany, with some big-name builders filing
for insolvency 2023, including, according to the Financial
Times, Gerch, Centrum Group, Development Partner,
Euroboden of Munich, and Project Immobilien Gruppe of
Nuremberg. “Factors including rising interest rates,
expensive construction materials, slowing demand, and a
shortage of skilled workers have led to the downfall of
these German construction firms,” states
ResearchAndMarkets.com.
According to the Construction Briefing website, the
French building industry is also on for a difficult year
ahead. “Total construction spending in France is expected
to have contracted 1.5% in 2023,” it reports. “And given
the lagged effects of interest rate hikes by the European
Central Bank, spending is projected to fall by another
0.1% in 2024. Residential has been the main drag on
overall sector growth in 2023, with real spending forecast
to fall by 2.5%, followed by a further 0.9% in 2024, as the
squeeze on households’ budgets from continuing high
inflation and interest rates, as well as tighter lending
standards, leads to lower housing demand.”
Dutch builders are also looking at a difficult 2024,
according to the ING Bank. “After construction
experienced slight growth of 0.5% in 2023, signs of
cooling are now evident at the beginning of the
construction value chain, with a visible contraction in
project development and the production of building
materials such as concrete, cement, and bricks,” states
ING. “This trend will continue further down the supply
chain. As a result, we expect a contraction of 2.5% in
Dutch construction output next year, the largest decline
since 2013.
“The picture is gloomier still in Italy, according to
ResearchAndMarkets.com. It forecasts construction in the
country activity down 2.5% in 2023, with decline of 8.6%
predicted for 2024 and 2% in 2025. Besides low Italian
GDP growth of 0.7% in 2023, with 0.6% expected in
2024, the downturn in construction is also said to be the
result of the winding down of government funded support
for residential building works. “The Italian government
reaffirmed in early September 2023 that it does not plan to
extend the "Superbonus 110" tax incentive program for
home improvement, due to potential implications on
public finances,” reports ResearchAndMarkets.com.
A UK plywood importer and distributor, who also sells
into Ireland and other EU markets, concurred with EU
counterparts that the market has been ‘very depressed with
poor sales and low margins. At the same time costs have
been increasing. “We’ve seen our freight rates from Asia
rising by 600% to 800% due to the Red Sea Suez situation.
Our shippers are now diverting around the Cape, so
deliveries are also taking longer,” they said.
“Additionally, poor log supply due to the rainy season has
also pushed up FOB price levels on Malaysian and
Indonesian plywood. In response to both these factors,
we’ve been looking at South America for some alternative
options to the Far East. But Brazilian prices are also being
pushed up now due to US demand levels.”
Another importer took a different perspective on the
freight situation. “The freight rates we’ve been paying
have been on a roller coaster in recent times,” they said.
“Ex-Asia, they went as high as US$150-US$160/m3 in the
pandemic, then went down in 2023 to as little as US$20-
US$30/m3.
Now, partly due to the longer routes being taken around
the Cape, but also we feel due to some opportunism on the
part of shippers, they’re back up to US$100/m3. But we
feel that this, to some extent, is going to underpin margins
in the plywood market, while the delays in getting cargoes
from the Far East will restore some balance in supply and
demand, potentially further firming up the market
situation.”
A UK importer said that they were also seeing recognition
among customers that prices could be on the turn. “Our
merchant customers were sitting on low stocks in the run-
up to Christmas but are now waking up to forward costs
rising and are buying in what they can,” they said. “For the
same reason, we think, we saw more inter importer trading
in January as companies sought to build buffer stocks at
current prices with the prospect that future supply
becomes more expensive.”
On the ban on imports of timber and wood products from
Russia following its attempted invasion of Ukraine,
importers in the UK and EU say Russian birch plywood is
still getting into both markets via third countries.
“We’ve seen not inconsiderable quantities of what is
patently Russian birch ply still being traded, although it’s
being marketed as something different,” said an importer-
distributor. “And this product is coming from countries
which, as far as we know, have never previously supplied
birch plywood in the quantities they’re now providing, if
at all in fact.”
This apparent illicit trade was reported by panel sector
magazine Wood-Based Panels International (WBPI). “As
the remaining pre-embargo already-shipped legal supplies
of Russian birch plywood reduced on the European
market, many large panel product traders reported that
new streams of birch plywood were coming on stream –
from unlikely sources,” it stated.
In response, the EU was asked to launch an investigation
into the issue by the Woodstock Consortium. The latter,
comprises birch plywood makers Paged Group of Poland
and Latvijas Finieris and is backed by EU industry
associations and ‘the vast majority of other birch plywood
producers in the EU’, including Finland’s UPM Plywood.
Its role is to ‘stand for and promote free and fair-trading
conditions for our sustainable industry globally, using all
available EU and WTO defence tools to ensure a globally
fair playing field’.
Consequently, the EU in August 2023 launched an
investigation into ‘the possible circumvention of the anti-
dumping measures imposed on birch plywood originating
in Russia. The EU statement on the investigation said that
there was ‘sufficient evidence that the existing measures
on imports of the product concerned are being
circumvented by imports of the product under
investigation’.
As a legal solution to the ban imports from Russia,
importers say they and their customers are turning to
alternatives to its birch plywood. One being heavily
promoted is Chinese Stretek, a poplar-cored ply with the
option of a birch or poplar veneer face. One UK importer
describes it as a ‘brilliant alternative to Russian birch
plywood’ and stresses that it’s also FSC-certified.
Eucalyptus plywood from China and Uruguay is also
reported to be being explored as an option in the UK.
Another importer said they were also seeing previous
customers for Russian birch product switching to Asian
marine plywood and veneered MDF. And Irish-based
manufacturer Medite Smartply is billing its MDF and OSB
as ‘perfect alternatives’.
Another challenge ahead, occupying not just EU
importers, but also UK companies which export to Ireland
and the rest of the EU and/or import from or tranship via
EU countries, is the EU Deforestation Regulation
(EUDR).
This is set for implementation at the end of 2024 for large
operators and traders and for SMEs six months later.
It requires due diligence on timber and wood products
placed on or exported from the EU market, plus six other
‘forest and eco-system risk products’, to ensure their
harvest and production is not implicated in deforestation
or forest degradation. It stipulates too that geolocation
coordinates must be provided for the plot of land from
which they originate. This is expected by the timber sector
to pose particular problems for composite products,
including plywood.
“We are really going into the unknown with the EUDR,”
said an importer. “We think it’s going to be a major
difficulty for some suppliers to get us the data we need for
our due diligence and particularly in terms of geolocation
data. Making things more of a challenge for the trade is
the lack of information that seems to be coming out of
Brussels on exactly how the Regulation will be managed
and the controls that will be put in place. There still isn’t
the clarity we need. The consensus is that the systems will
need more time to get right and that business will need
longer to prepare.”
A UK importer said they would inevitably be impacted by
the Regulation and that it would impose ‘another layer of
cost on UK businesses trading with the EU when we
already have to comply with the [anti-illegal timber] UK
Timber Regulation’.
One importer-distributor said that through 2024 the
European plywood sector would have to ‘navigate some
choppy waters’ and that seems to be the outlook consensus
in the trade. “We see higher freight rates and longer
delivery times from Asia to a degree putting a floor under
prices, which is not necessarily a bad thing after the race
to the bottom we saw in 2023.
But there’s a fine line between that and these factors
leading to shortages and pricing product off the market,”
they said. “It looks like the construction sector will be
depressed for a while yet and we’re concerned about
customers struggling for cash flow leading to an increase
in bad debt. While it may inhibit growth, with inflation
still at a relatively high level the rule is that the less you
borrow, the more secure you’ll be.”
Another importer, however, said they were more
optimistic that the market would see “green shoots later in
the year”. “The continued lowering of inflation that’s
predicted and interest rates coming down, even if only by
small increments of 0.25% to 0.5%, should slowly
increase market confidence and that could make a lot of
difference.”
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