Plywood has many applications
Plywood has retained its strong position in applications where structural strength and resistance to moisture, impact resistance and an attractive appearance are required. Various coatings add to the versatility of the applications.
Hardwood plywood has excellent strength and stiffness and good resistance to creep. Its surface hardness and damage and wear resistance are also good. Typical end uses for birch plywood are concrete formwork panels, transport vehicle floors, container floors, walls and roofs, traffic signs and billboards, furniture and support strips for furnishings.
The strength and stiffness of softwood plywood are also high, but it is softer and has more knots than hardwood plywood. On the other hand, softwood plywood is fairly light and easy to machine and nail. The typical end-uses include roof structures, floorings, walls and ceilings, non-visible structures in vehicles, packaging and boxes, construction site structures, fencing and shelters, as well as formwork with a limited number of concrete pourings. Softwood plywood with three thick veneer plies is also used as a wind barrier in construction thanks to its breathability and stiffness.
In the long term, wood products industry production is experiencing the strongest growth in Russia, Asia and South-America – all areas with abundant underutilized wood resources and strong growth in demand for wood products. The increase in production capacity in the traditional markets of North America and Europe is low and focused on special products. We believe that plywood production development will continue to gain momentum also in Africa and we are actively monitoring the situation in several African countries.
Major investments continued in Europe
2016 was the third consecutive exceptional year in which several major investment decisions were made in Europe to increase production capacity.
Europe is a market area with advanced technology where plywood manufacturers are focused on producing high value-added, high-quality end products. The markets for plywood are primarily in Europe, but special products are also exported to the US and Asia, for example.
The level of technology in plywood production is high. Production efficiency and quality improvements are key motives for investments.
The unusually high level of investments continued in Europe during the past year. In Poland, an investment in an LVL mill's new line started up. In Finland, we started up the modernization of an LVL line and, in addition, in Finland and Estonia, investments in birch veneer and plywood production lines.
The growth in ecological demands is increasing the popularity of wood construction which drives demand for LVL in particular. Also the structural change in mechanical forest industry and a shift towards higher-value-added products create new opportunities.
Africa is a traditional supplier of round wood
Africa is a traditional supplier of round wood, and the development of its plywood industry has been slow. However, the restrictions on wood exports in some important producer countries have increased the need for local further processing of wood. Traditionally, the African markets have been dominated by European machine suppliers. In future, customers and investors will, however, transfer to more efficient process technologies which, together with aging rubber tree forests and growing plantations, open up new opportunities for Raute. At the end of the year, we signed a strategic cooperation agreement with South Africa's largest plywood manufacturer, which led to an order for a plywood pressing line.
Russia' economic situation slowing investments
During 2016, the Russian economy took a turn for the better but remained weak all the same. Following several slow years, a new significant birch plywood mill project took off. Also the preparation of many other investments continued to be active. We do not, however, believe in a rapid normalization of the market situation. The low rouble supported the price competitiveness of local plywood manufacturers.
Russia is a strong plywood industry area where plywood production has long traditions and a high level of expertise. Its large forest resources and competitive production provide good opportunities to expand plywood production and make new mill investments. Although the situation has stabilized and taken a slight turn for the better, the political uncertainty resulting from the crises in Ukraine and Syria, the weak economic development resulting from low oil and raw material prices and the difficulty of securing financing due to economic sanctions are still slowing down the implementation of investment plans.
Russia's plywood manufacture has doubled over the past decade but, for the first time, fell slightly according to 2015 statistics. Domestic demand is expected to remain low in the near future too but plywood exports are expected to continue growing.
Growth in China's plywood production levelling out
The Asia-Pacific area has the world's most powerfully growing plywood production. A large proportion of the plywood manufactured in the area is used locally. In addition, wood-based panels are exported to the Middle East, the U.S. and Europe, for example. Production still relies on tropical tree species to a large extent, but the use of small-diameter plantation trees is also gaining ground.
China is the world's largest producer of plywood. Production has grown approximately six-fold during the past 15 years. According to the statistics for 2015, growth continued despite concerns about the reported slowing of China's economy. However, the recent levelling out of growth in production volumes shows a slowing down of growth to a more sustainable level. In 2016, a slowing down of investment decision-making in on-going projects, resulting from a weakening of economic development, was perceptible. Recent years' measures to strengthen the economy still do not support the financing of investments among Raute's customers.
Plywood production in China is traditionally based on highly manual and simple technology. We expect the industry to develop rapidly during the next few years in terms of technology, as the quality standards imposed by export markets and occupational safety and ergonomic requirements demand more modern manufacturing processes. Demand for higher-quality plywood is also likely to increase in China's domestic market. The raw material used is largely imported wood, but the role of domestic plantation forests is growing.
Decreased orders in Asia-Pacific area
The economies of the key plywood manufacturing countries in Southeast Asia, Indonesia and Malaysia, are currently weak. With the proportion of domestic production in our key export market, Japan, simultaneously growing, 2016 was a tough year for Raute's customers. Also raw material availability, the harvesting limitations on natural forests and problems linked to the quality of plantation wood limited the development of production.
Raute received few orders in Southeast Asia in 2016. In the future, we believe that the growth of plantation forests and the resulting improvement in quality will open up new opportunities for Raute.
In Australia and New Zealand, the plywood and LVL industry was successful in 2016, driven by the improvement in the local economy, construction markets and exports. No new major investments were started up but Raute managed to gain a few modernization orders.
The Japanese market is characterized by expensive raw materials, a high level of production technology and strongly positioned local machinery suppliers. Despite the high level of production technology, Raute sees opportunities for supplying the markets with machine vision technology, for example.
In Malaysia and Indonesia, plantation forests will enable plywood production growth in the coming years, and it is believed that the area's prominence as a plywood producer will increase again, although the area still has a long way to go before it can regain its 1990s level. Due to the change in the raw material base, Raute expects the existing machine base to be rebuilt and modernized.
In India, the majority of plywood production continues to be highly manual and relies on simple technology. India's extensive eucalyptus and poplar plantations are not enough to meet increased raw material needs. This has prompted India to become a major importer of tropical wood from East Malaysia. Raute sees opportunities in the area, as the products and solutions developed for the Chinese market can also be adapted to the needs of India's plywood industry.
Growth opportunities in South America
In 2016, the local economy in South America continued to be weak in the key countries. The largest plywood producers are Chile and Brazil.
On the export markets, the competitiveness of large South American plywood manufacturers was good and investments from a few years ago are now fully operational.
South America is one of the biggest growth areas in plywood production. Especially in Chile, growth is based on the structure of the local forest industry, abundant plantation wood resources and investments made in products with a high degree of processing.
In Chile, the good profitability of plywood production creates a basis for growth over the next decade. New production capacity is being built, based on plantation forests suitable for plywood production. For the big forest industry companies operating in Chile, plywood manufacture is an important part of managing the optimal use of forest resources. Although plywood consumption is also on the increase in Chile, most of the plywood is still exported to North America and Europe. Raute's customer base includes the country's largest plywood manufacturers – such as Arauco and CMPC. The total capacity of major mill-scale projects dating back a few years became fully operational in 2016. The next major projects are expected to be launched in 2018, depending on demand. Meanwhile, production is being developed through modernizations. Raute is a major technology supplier in Chile,
Brazil is the largest plywood manufacturer in South America, but the technology in use is largely outdated and requires a great deal of manual labor. Import obstacles and the financial aids granted to local machinery manufacturers have reduced investments in technology upgrades. Brazil's raw material resources are not as high-quality as Chile's. Europe and North America are important export destinations for Brazilian plywood. In these markets, the devaluation of the Brazilian currency has improved competitiveness. On the other hand, domestic demand is soft due to an extremely negative economic situation. We see potential in Brazil as a result of an increase in production quality requirements and the development of industry.
Decline in North American plywood production
North America is the world's second largest plywood production region and the largest LVL producer in the world, despite the fact that its plywood production volume has fallen by half to around 11 million cubic meters within a decade. This development is, on the one hand, the result of plywood being replaced by cheaper products in a few key areas of housing construction and, on the other, the outcome of the continued low level in housing construction.
In North America, investments in plywood production have been minimal in recent years, and mainly targeted at modernization projects. Economic recovery, which continued in 2016, has not impacted housing construction on the same scale either. No clear explanation for this market change has been presented and, thus, it is difficult to predict when the situation will turn around.