European plywood markets facing multiple pressures

September 02, 2019
Source:
ITTO/Fordaq
Views:
475
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As the year has progressed, the European plywood sector has become increasingly depressed. That’s the consensus among a number of leading importers and distributors. In the words of one company, the market faced a ‘perfect storm of negative factors’.

There has been a steady draining away of end-user and consumer confidence, buying, as a result, has become increasingly piecemeal, with forward ordering evaporating and prices have fallen across the board, in the case of certain products up to 40%. Many European buyers are heavily stocked and bad debt is reported on the rise. Reflecting dwindling demand, supply is plentiful and orders available on relatively short lead times. However, with manufacturers now trimming output in the face of deteriorating market conditions and plant closures and production line mothballing anticipated, importer nervousness about prepaying for orders has increased.

“We expected some market adjustment after having a robust three years of business from 2016 to 2018, with global plywood output hitting a record 161 million cu.m in 2017 and Chinese production reaching 117 million cu.m,” said one continental European importer. “But we didn’t think it would be as difficult as this.”

A new analysis of the total supply of plywood to the EU market in 2018 by the FLEGT Independent Market Monitor (IMM), an ITTO project, highlights one reason for the scale of the current difficulties. This reveals that, when EU domestic production of around 5 million cu.m is taken into account, the total volume of plywood supplied to the EU market in 2018 increased 4.6% to 9.50 million cu.m, that is a level which exceeds the previous high-water mark in 2007 before the global financial crises.

This begs the question of exactly where the large new plywood supplies arriving in the EU market in the last few years (mainly from Russia, China, Belarus, and Ukraine) are able to find an outlet - given that construction and furniture sector activity in the EU are still down, respectively, around 6% and 14% on the 2007 level.

There's also been much well-publicised substitution of plywood by other products, such as OSB, since then. Part of the answer to that question appears to be that a significant proportion of the most recent surge in supply has gone into stock which can't now find a buyer. Plywood companies themselves attribute market difficulties to several factors, the most significant being declining confidence in the global economy generally. This is the result itself of several developments, including slowing of Chinese economic output, US-China trade tensions and uncertainty surrounding Brexit and its potential impact on European economic stability.

In response to declining demand, combined with particular circumstances in key supplier countries and manufacturers attempting to gain competitive advantage, prices have been trending down, depending on source, for the past 10-12 months. “Brazilian elliottis is down around 40% since last August/September, and Russian down 25-30% since around October, while Chinese has come down 10-15%,” said an importer. The Brazilian price squeeze has also been attributed to tightening demand in producers key US export markets, plus deteriorating economic conditions in Brazil itself impacting producers’ domestic sales.

Chinese price deflation is put down to manufacturers following international market trends to remain competitive, plus US tariff hikes.

 

Indonesian and Malaysian plywood prices were also reported to have weakened in line with the wider market, although one importer said that, other than in the UK, these suppliers had become ‘niche’ in the EU.

On a brighter note, there are signs that prices may finally be bottoming out, with some Brazilian and Russian suppliers reported to be attempting to edge the market upwards slowly. However, many stockholding importers are said to be still taking a hit on over-valued stocks: “In some cases we’re talking about US$100 cu.m difference between what companies paid for product, and current import prices. That’s around US$5,000 per container and it’s not unusual for some of the bigger businesses to be placing orders of 100 to 200 containers, so we’re talking about stock write-offs of between US$500,000 to US$1 million. It’s pretty serious.”

Chinese prices were also reported by a UK importer as now ‘steady’, with Indonesian and Malaysian following suit, ‘although volumes of the latter have been down and shortages are anticipated in Q4, which is also the rainy season’, they said. Latest figures from Eurostat are for January to May 2019, so prior, according to most importers, to the sharpest slowdown in demand.  They show total EU imports of plywood by EU countries (including internal EU trade) down 4.3% compared to the same period in 2018 at 2.01 million tonnes. Total EU imports from outside the EU were 1.27 million tonnes, 2% more than the same period in 2018.

Of larger EU importers, Spanish imports (including intraEU and extra-EU imports) were up 11.4% to 52,600 tonnes from January to May. This, say plywood businesses, reflects the country’s improving economy, with the Bank of Spain in June revising its forecast for GDP growth for the year from 2.2% in March to 2.4% and Spanish ‘value-added’ construction, led by the residential and commercial building, sector expected to grow 3%. Total intra-EU and extra-EU imports were also up in Belgium (+4% to 165,300 tonnes), France (+6.3% to 157,400 tonnes) and Denmark (+9.3% to 69,500 tonnes).

However, imports fell in Poland (-5.2% to 94,900 tonnes), Italy (-13.4% to 124,700 tonnes), Netherlands (-0.8% to 184,700 tonnes), Germany (-15.7% to 372,100 tonnes) and UK (-2.6% to 373,400 tonnes).

EU tropical hardwood plywood imports were actually up from January to May compared to the same period in 2018, rising 11.8% in volume to 149,200 tonnes and 20% in value to €133.3 million. This, say importers, reflected continuing confidence in demand in late 2018 and that price deflation experienced in the market was more focused in temperate hardwood and softwood sectors, and became steeper as the year went on.

In the January to May 2019 period, tropical plywood imports fell in Belgium (-3.1% to 16,300 tonnes), France (-2.4% to 8,700 tonnes), and Italy (-0.3% to 7,100 tonnes). However, German imports of tropical plywood rose 3.1% to 11,200 tonnes, and imports in the Netherlands were up 5.6% to 14,700 tonnes, but the biggest increase came in the UK, up 22.2% at 83,200 tonnes, a trend attributed in part to stockpiling pre-Brexit. “Quite a number of companies built their stocks very high, despite weakening demand and they’re now trying to offload surpluses which means competitive market conditions,” said one UK importer.

EU tropical hardwood plywood imports were up from China (+48.5% to 66,000 tonnes), Brazil (+23.4% to 5,400 tonnes) and Vietnam (+16.4% to 5,400 tonnes). However, imports fell further from Malaysia (-31.8% to 16,100 tonnes) and were also down 1% from Indonesia, to 39,700 tonnes.

Asked whether FLEGT licensing was having any more market impact for Indonesian suppliers, EU importers echoed comments from the last IMM Trade Consultation in Antwerp earlier this year. They said there was still little awareness or understanding of what a FLEGT license means further down the supply chain and that, where any form of legality or sustainability verification or certification was specified, it was FSC or PEFC. So FLEGT remained a ‘nice to have’ rather than a ‘must have’.

In the EU temperate hardwood plywood sector, imports from outside the EU were up 2.9% overall to 630,300 tonnes in the January to May period. The biggest increases came in imports from Russia (+10.8% to 337,800 tonnes) and Ukraine (+17.2% to 37,100 tonnes). The largest decreases were in imports from China (-7.9% to 199,300 tonnes) and Belarus (-8.5% to 45,200 tonnes).

In softwood plywood, EU imports from outside the bloc between January and May 2019 contracted 1.7% to 487,000 tonnes, with biggest declines from Chile (-13.3% to 43,500 tonnes) and Russia (-10.5% to 40,600 tonnes). However, imports increased from China (+2.5% to 28,500 tonnes) and Brazil (+4.3% to 358,900 tonnes). Growth in the latter was again attributed in part to UK stockpiling in the first quarter.

Looking forward, EU importers said they could see no immediate reason for much change in market conditions through the rest of 2019. One anticipated improvement setting in in 2020, although another said it was impossible to predict ‘when we can’t even forecast what’s going to happen in the coming three months. The overall economic outlook is just too uncertain”. Prices were expected to be more stable, with Russian and Brazilian suppliers continuing to nudge levels upward. “But in the current climate, with Brexit, international trade tensions between the US and China and to some extent the US and Europe, we don’t anticipate jumps of 10%,” said an importer.