Summary
• Sawn timber prices have risen slightly but log costs remain high.
• Production cuts have helped to balance the market.
• Little change is expected in the UK market this year.

In better times, Swedish sawmills would be celebrating trading so far this year. Both whitewood and redwood producers had a good start to the year as they moved reasonable volumes and secured some price increases.

But despite these encouraging signs, profitability – or lack of it – remains the big issue. As reflected recently in many Swedish companies’ full-year results, the majority of mills are operating at a loss.

“On every cubic metre that leaves the gates of our sawmills, we’re losing money,” said one shipper.

Another believed that, at present, the mills’ profitability was weaker than in 2011, which produced some poor results.

Log costs

Mills have achieved some modest price increases recently but, with log costs still high in comparison, they’re not enough to reverse their fortunes.

“If you look at the results of many Swedish sawmills last year they were posting losses of £20-30/m³. Log prices have come down but only by around £5-7/m³. Our price increases of £5-10/m³ are helping but they will not get the mills back into the black,” one mill told TTJ.

When his company had a good start to January, largely thanks to customers replenishing after destocking in the fourth quarter, it was hoped that prices could be raised again in the second quarter but sales slowed slightly in February and March, making any further rises more difficult.

The remedy is for log prices to fall and sawn timber prices to rise but most contacts conceded the former was unlikely.

“Forest owners know that there are mills needing logs all the time. We’ve paid very high log prices for the past two years so the forest owners have become pretty rich and if they don’t get the high prices, they wait,” said one contact. “I don’t see us getting much lower log prices. We have to just struggle here until the market comes back and that could easily be another year.”

Another contact agreed. “Most European sawmills need to put prices up further but, unless there’s a heavy undersupply of material these rises won’t be significant. It will be a very hard struggle for mills to get prices moving upwards,” he said.

And while mills are struggling, one shipper pointed out that the supply chain was also suffering. “Our customers are having a hell of a fight on their margins as well,” he said.

Seasonal upturn

Traders are expecting the market to improve during the traditionally more buoyant spring and summer period but they’re well aware that this is seasonal. “If we don’t make business in the second quarter, then we’ve lost it for the year,” said one shipper.

But apart from some seasonal upswing, contacts were unanimous in their expectations of little change this year. Japan is more stable than most and some increase in housing starts there is expected this year.

China is also a growing market for Nordic shippers. One Swedish mill expected to supply 70,000m³ this year – still a smaller volume than exports to many European countries but 50% more than the company shipped last year.

In Europe, France and Germany are enjoying relatively strong demand but, although Greece’s latest bailout has instilled some business confidence, that could easily be evaporated if there was any more trouble in the eurozone.

“The European construction [of the eurozone] is our biggest enemy right now,” said a shipper.

US recovery

However, it will be a recovery in the US that has the biggest impact on the balance of the global market for sawn timber.

“There is not much change expected in any markets,” said one contact. “There are some weak signals of improvement in performance in the US but it won’t improve enough to have any significant impact this year. This year will be tough and profitability will depend on the supply/demand balance, so it all depends on output.”

The production curtailments introduced in the fourth quarter – and still in place in some mills – have brought some balance to what is still a supply-driven market.

“If everyone was to return to full swing it would kill the market,” said a sawmiller.

Another said it would be a while before the industry could gauge whether production is at the right level. “We’re selling everything we’re producing and the inventory is not high; it’s going down,” he said, adding that, all things considered, he was positive about the market.

“I’m quite positive but not euphoric,” he said.

UK market

He noted some improvement in the UK market compared with last year, while another said there was “not bad activity” for the second quarter. But that said, no marked change is expected this year.

“The UK market has stabilised at a lower level but competition is pretty fierce because it’s such a large import market, particularly for Scandinavian mills,” said one contact.

Another said there was increasing competition from UK-grown timber which had taken market share from Sweden.

Mills are looking forward to the seasonal upturn in the UK market but one shipper raised concerns about how this might be dented by a busy summer of sport and Queen’s jubilee celebrations.

Last year the additional Bank holiday for the royal wedding impacted sales; this year the UK is given another extra holiday in June to mark the Queen’s 60-year reign and then the European football championships, which start a few days later, mean people will be “glued to the TV and not so bothered about going into the garden and doing things”. There will be a couple of weeks’ respite and then the Olympic games begin, followed by the Paralympics which finish on September 9. As well as diverting buyers’ attention away from work, security surrounding the Games may also disrupt deliveries of timber into London.

Although this period of economic turbulence seems never-ending and no-one was expecting any positive change this year, one shipper remained confident about the long-term future for timber.

“The short term is uncertain but we feel quite positive about the long-term outlook. The developments we can see for timber construction, timber windows and other timber products are promising,” he said.