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Tigerwood's Market Eye, our regular take on what's moving and shaking in the timber industry. |
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Taking a hard look at
plywood supply |
 
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Markets always ebb and flow and sometimes they do both under flood conditions and it happens fast. The current state of play globally is confusing. We all know the problems of the USA and the debt-ridden economy that has cast a shadow over everything creating a weak dollar and high oil price with the overall downturn in demand for all consumer products. However, this is being balanced by a lack of capacity and shortage of raw material worldwide, particularly in plywood production. Let us take a look at supply of hardwood plywood to the UK and European markets. Brazil due to high currency and scarcity of hardwood logs is no longer able to supply the volumes previously relied on by Europe unless a realistic price based on actual cost is paid. Even then the volumes are not so great, the emphasis being on coniferous plywood production. Indonesia is suffering from raw material shortages and a higher related cost of production and, consequently, capacity is at an all time low. China continues to feed the world with products, including plywood, but they too are now feeling the heat from rising oil prices and rising raw materials prices coupled with increased labour costs and tax breaks for exports being withdrawn. Also it is likely that the recent earthquake will increase domestic consumption as reconstruction starts. Malaysian supply is split between Peninsula, where the bulk of production is in the hands of five or six factories, and East Malaysia. With the demise of Indonesia as the major supply of thin panel to the world, it is Sabah and Sarawak that have taken up a large part of this market due to the availability of suitable log species coupled with their geographical location that ultimately means that Japan and Korea are the favoured markets. Effectively the majority of mills have little or no interest in European specifications when margin return and ease of production are taken into account. In global terms glue prices have risen dramatically. In Peninsula Malaysia, for example, glue prices have increased by nearly USD90 per tonne overnight and this added cost is now making current prices look very poor especially when the other fuel-related costs are taken into account. The higher prices of fuel both for road haulage and for ship’s bunker fuel are having a major impact on pricing generally. It is easy to forget that there is are significant costs in transporting goods to the port and also in the logistics of transporting raw material to the factories which are often in remote locations. Despite the reduction in cargo, the increased operating costs mean that freight rates must rise and stay high for some time to come. So in short, yes, we are looking at an overall global adjustment of economies and a reduction in demand, but we also have in the plywood sector certainly, a reduction in available volumes and what production is available for Europe is in the hands of, in reality, a very few factories.
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