Summary
• Log availability is good but prices are high.
• Sawn timber prices have softened but are expected to rise again.
• Demand is hand-to-mouth and production and stock levels are being managed accordingly.
• Mills are taking precautions in case of another severe winter.

The British timber sector finds itself in a similar position to that of the summer report – it’s faced with steep log prices and hand-to-mouth demand.

Log availability remains good, but that’s partly as a consequence of reduced demand – and it’s at a price and with timber selling prices weakening, margins are under pressure.

“We’re trying to push [weaker sawn timber prices] back onto the log sellers with pretty much no success,” said one sawmiller. “We’re getting some marginal reductions but not sufficient to compensate for the drop in the selling price.”

The consensus is, he said, that the medium to longer-term prospect is for timber prices to move forward again and the private growers are adopting a “let’s wait for that to happen” view.

Private growers

Private growers now account for a substantial percentage of supply – in some cases the majority – and mills are acutely aware of the need to keep them on side.

“We have to build relationships because without them we won’t see sufficient log availability for the investments [the British sawmilling sector] is making now,” said another.

“Private growers certainly hold a lot more market share,” agreed a fencing sawmiller, “but as it’s often not their primary business they can pick and choose what comes onto the market and when they’re asked to reduce their prices they don’t have the same urgency to sell.”

He added that he thought the Forestry Commission’s reserve prices at the moment were also “a little bit creative” in the face of a market on a downward trend.

Demand is described as “sporadic”, and “chequered” and mills are keeping a watchful eye on production and stock levels.

“The summer slowdown seemed to come a little earlier than usual and there was an expectation that things would pick up again after the summer holidays,” said a UK Forest Products Association (UKFPA) spokesperson. “That doesn’t seem to have happened and, with a few exceptions, the market remained flat.”

“We’re reasonably balanced at the moment, but I can’t say I’m excited about it,” said a sawmiller, adding that overtime had been stopped in order to manage stock levels.

“We’re selling more volume than this time last year but the problem is we’re still growing, so we need to sell even more than that,” he said. “Customers don’t want to carry any stock and delivery lots are getting smaller. We’re taking a week at a time rather than looking at a month in its entirety – let alone a quarter.”

Another sawmiller agreed that the trade had a “we’re all doomed” moment five or six weeks ago when they realised their yards were full and that they may have overbought during the summer. “The emergency brakes went on and the trade had a collective wobble,” he said.

That said, the situation seems to have stabilised, although no-one is popping champagne corks just yet. “With only a few weeks to go to Christmas I think the market isn’t too bad given the general economic climate,” said a contact. “It’s going to be a little quieter in December because it always is, but I don’t see it dropping off any further – and certainly not off a cliff.

“We think we’ll be able to maintain our production levels,” he added. “What is really vital for us now is to keep the range of product on the ground.”

Customers may be buying small volumes, he said, but when they want it, they want it now. “They really are looking for 100% availability, so if they give you a spec for 40 packs and you’re missing one or two, you’ll lose the whole job.”

Fencing demand

Some mills are enjoying buoyant demand. “Our customer base is still relatively busy and the mill is working on a full shift, with overtime,” said a fencing specialist. “We’re sold out for November, so compared to some others we’re in a very positive position.”

British mills are still benefiting from import substitution although opinion is somewhat divided on whether this has reached its peak or has some way to go. Some remain convinced that there is a “tremendous opportunity” for home-grown timber to take market share, particularly while the sector is investing in increasing production and improving quality.

Others feel that those major customers who were going to make the switch have already done so and that “we’re just battering each other now”.

And, of course, greater market share doesn’t necessarily equal greater demand. “Although the marker share that has been achieved is greatly welcomed, it’s not the overall demand for timber that has increased,” said the UKFPA. “It’s just that British producers are taking a bigger share of a smaller market.

“Of course,” he added, “investment in the UK sawmilling sector is continuing, so when demand does pick up, it will be well placed.”

Irish imports

As competition for that smaller market intensifies, Irish imports are continuing to be a major thorn in the side of British producers who have seen their hard fought for sawn timber prices being undermined.

“Irish mills see the UK as the home market at the moment so it’s something UK suppliers have to factor in,” said Confor. “The issue for them is, how to respond? Do they try to match the prices or do they hold firm, maintain a higher price and hope the demand is still greater than the Irish mills’ ability to supply?”

“The irony is we haven’t lost any business to them [Irish imports] but we’ve had to respond and bring prices down because once the price is out there everybody uses it as a stick to beat you with,” said a UK producer.

There is consensus that dropping prices doesn’t stimulate demand that simply isn’t there but, either way, British mills are resigned to the fact that they just have to deal with situation.

In terms of product types, carcassing remains flat and “the one that’s hurting us”.

“People have been destocking because of a lack of confidence, particularly on the construction side,” agreed Confor’s spokesperson. Construction is definitely where the drag is, he said, adding that mills are starting to sell into the pallets and fencing market in order to keep turning over the volume.

“The pallet sector hasn’t been investing in new pallets but has been reconditioning them, so there is potential demand there and some mills have started to see it increase,” said Confor. “Clearly it’s selling into a lower value market and the profit margins may not be as good, but it’s still an opportunity to keep the mills ticking over.”

Price sensitive

The pallets and packaging market remains tough, however.

“It’s usually a fairly buoyant sector in the last quarter, with shops stocking up in the run-up to Christmas, but it’s been a bit sporadic and not what we’d expect,” said a specialist producer. “And it’s very, very price sensitive.”

The next fencing season is on the horizon and is the cause of some optimism. One contact said his mill was putting down substantial stocks of 5ft6in 3x3s for the agricultural market. “It’s a planned stock build and even in a rotten year it will take off like a rocket come Easter.”

With Easter falling relatively early next year, the hope is that the domestic fencing season will get under way earlier but the expectation is that the weather could kybosh any gains. “We just have to wait and see,” said a fencing specialist.

The weather is on all British timber producers’ minds as they look ahead to the end of this year and the beginning of next.

In terms of preparation in case of a third tough winter, the grit has been bought and further investment has been made in frost saws.

“Rather than just having the one set we can now run the mill for three or four weeks,” said a sawmiller. “We’re also using different lubricating oils that don’t get viscous at low temperatures.”

“We’re more prepared for it than we have been in the past and will lay down some strategic log stocks and sawn timber stocks,” said another sawmiller.

“We’re putting stocks on the ground in anticipation,” agreed a third, “but they are commodity items that will turn over in four to six week’s irrespective of the weather taking a turn for the worse.”

Aside from the weather, British producers anticipate a tough – but not terminal – few months ahead, although unfolding eurozone crisis could throw a spanner in the works.

“If it causes some sort of collapse of the euro, that will create a very difficult situation for domestic producers,” said Confor.