Summary
• UK imports of German sawn softwood were 37% down in 2011.
• German mills are focusing on the domestic market.
• High log prices are challenging mill profitability.
• Large mills are more “stable” than in recent years.

Germany is often called the economic powerhouse of Europe, and with good reason. It recorded an impressive 3% economic growth in 2011, but there has been a stuttering in recent months, and potential complications from the Greek bail-out remain a possibility on the horizon.

Most of its growth in 2012 – forecast to fall to about 1% – will be on the German domestic market rather than exports, a trend which is mirrored in the company’s timber sector.

A look at the UK Timber Trade Federation import statistics show a clear declining market share for German softwood, partly because German mills can make more money at home and because Nordic mills are proving more competitive in the UK.

Provisional German government statistics show German sawn softwood exports to the UK were down 37% in 2011 to 221,813m³ (2010: 351,187m³) – the biggest fall among Germany’s top 10 export markets. Planed exports for the nine months to September 2011 show 107,000m³ – a 6% decrease.

In hardwood, 27,000m³ was exported to the UK (down by 30%) for the nine-month period – making the UK Germany’s ninth largest hardwood export market. Beech was the top species at 10,000m³, followed by oak (3,500m³). China was the number one destination for German beech and oak.

Prices

“The German market is stable but the selling prices are not as high as we need, due to roundwood prices being very, very high.” said Norbert Buddendick, of the German Association of the Sawmilling & Timber Industry.

“But it’s more profitable to sell the wood in Germany for low prices than it is to sell it in North Africa – and less risky.”

Several sawmillers told TTJ that it was simply easier to get better prices in central Europe: “In the export business it’s hard to compete with Sweden, the Baltics, Russia, Romania and Slovenia,” said one. “They have cheaper raw materials and it takes a real fight for us to compete.”

His mill’s Middle East business has picked up although prices are not great. “Everything is a fight, it’s all long discussions over prices. What is good – and increasing – is China.”

Sawn softwood exports to India registered a 185% rise in 2011 to 67,589m³. A sign of things to come maybe, with one contact saying this was a “significant” development even though overall volumes were still low.

“We’ve been kicked out of the market for traditional UK products like CLS and carcassing,” he said, adding that he was unable to compete with British and Irish producers. “The Swedes are willing to accept losses on orders, but we’re not.”

UK demand

The mill has taken the decision not to stock UK specifications but produce to order, which is typically “spot” business of 500-1,000m³.

Another sawmiller reported UK volumes as “OK” but at a low level, and he is taking a hit on profitability to stay competitive.

“The currency situation has been a little better for us recently and I am sure we will have a price increase by the end of March or beginning of April,” he said.

A UK agent for German mills reported stable business for CLS, pine raw material for decking and some laminated products. His own prices have increased for the second quarter by an average of €5-7/m³ for redwood and whitewood.

“The big question looking forward is what the Scandinavian prices will be like,” he said.

He doesn’t believe hand-to-mouth ordering will continue indefinitely. The combination of a lack of stock on the ground and the return of demand and timber shortages in the future give him confidence that volume forward ordering will return.

German mills stable

Mr Buddendick reported larger German sawmills as “stable” after the turmoil of previous years which saw debt-laden Klausner sell two mills to Ilim Timber Europe and close another, while other giants Rettenmeir and Klenk are still restructuring.

Shifts have reduced and some mills have closed – Sturm Holz’s sawmill in Baden-Württenberg and Holzwerke Gmach, for example. Gmach’s sawmill (250,000m³ log capacity) was losing money, but the company is still operating the laminating facility and biomass plant.

Sturm’s mill produced 400,000m³ in 2008 but had reduced to 160,000m³ last year. The owner will concentrate on his Austrian sawmilling enterprise instead.

Mr Buddendick said the high log prices, lower harvesting rates and large sawmilling capacity made for a “dangerous situation”.

“This is a very important time now on the German log market. On the one hand the prices have come back a little, but not significantly. But if the forest owners play a strong card they may be able to push prices higher.”

Log shortages

One sawmiller said log shortages meant he had to source an increasing volume of 4m logs and more pine and fir, which is impacting flexibility and products. His normal mix is 90% spruce and 10% Douglas fir sourced from 20m logs.

The extreme cold weather in February – down to -25°C in parts – is said to have affected production, with some mills playing catch-up.

There is evidence that the big mills are giving more focus to selling prices rather than volumes, though reports of “ridiculous” prices are still knocking around.

Engineered timber is doing well on the export front. One mill said its glulam business to the UK increased in 2011, while another is building a timber laminating plant this year.

German mills’ concerns include NGO campaigning for an expansion of nature biodiversity zones in forests and the possibility of phytosanitary standard ISPM15 being expanded to include intra-EU pallet movements.

“We see this [ISPM15 extension] as the first step from wood packaging towards inclusion of sawn timber,” said Mr Buddendick.