Summary
• Log availability is good, but prices are very high.
• Private growers now account for 40-50% of raw material supply.
• British mills are still benefiting from import substitution.
• Mills are keeping stock levels in check.
• Hand-to-mouth buying is prevalent.

British timber is now enjoying a 40% share of the UK’s timber market, but far from counting their chickens, there is a palpable sense of nervousness among British primary producers and ready acknowledgment that “no-one knows what’s around the corner”.

The now common themes of high log prices, steady demand and trim stock levels have continued into the second half of the year.

Log availability is said to be good and is likely to continue so for the foreseeable future. Small roundwood for pallet production is under slight pressure due to the demands of the biomass sector, although there is a school of thought that with sawmill co-products in such abundance and reasonable quantities of recycled wood available, this is not a major issue at the time of writing. Of course, a dip

in sawmill production and/or a hiccough in recycled supply would radically alter this.

The ready log supply is a direct result of high log prices keeping private growers engaged in the market. Investments in UK capacity, pressure from the renewable energy sector and export markets have all encouraged prices upwards and private supply now accounts for 40-50% of British sawmill production, up from around 20%.

There is general recognition that prices are “far too high and probably unsustainable”, according to the UK Forest Products Association (UKFPA), but the sawmills are fairly hamstrung at present. “We’re heavily reliant on the private sector now and if we try to force prices down, all that will happen is that the [private growers’] timber will be withdrawn from the market,” said a sawmiller.

Log prices

High log prices are “a reality we have to face”, agreed another. “Demand is slightly down but there’s no sign of it translating into lower log prices as historically it would have done.”

Demand is still good but there are indications it may be slipping slightly. March, April and May were “very strong”, with one sawmill claiming “a record month in terms of deliveries” in May. However, demand suffered “a noticeable slowdown” in mid-June. “I think some of the optimism preceding and during Easter disappeared a bit,” said a sawmiller. “I think people have filled their stock yards and it’s not pulling through from the end user.”

“There was a bit of a panic in mid-June when consumer confidence was low,” agreed another. “But we’ve seen demand pick up again, so it may have been a degree of ‘positioning’ because prices were due to go up at the start of July.”

The price of imported timber did rise but British prices have remained static and are likely to remain so for the rest of this quarter. British producers are not succeeding in passing on the higher costs of raw materials and, in fact, say that if demand doesn’t increase, their sawn timber selling prices may dip. Much depends on the level and price of imports – and particularly the price of imports from Ireland, which are continuing to have a deflationary effect.

Import substitution is still a major factor, but there is a growing sense that a status quo is being reached. “There is no suggestion that people who have switched to British timber from Swedish will switch back again, but I suspect that most customers who were going to make the move have done so by now, ” said a sawmiller.

“Each time a domestic producer is seeking to sell to a new customer it has to go through an education process, so it picks up the easily convinced customers – the ‘low hanging fruit’ – first,” said a ConFor spokesperson. “Once the easy fruit is gone you need to get further up the tree and it becomes more difficult.”

No overall market growth

British-grown timber’s current market share level hasn’t been seen “in living memory”, but the qualification is that the overall market for timber hasn’t grown.

“It sounds great that we’re supplying 40% of the market, but domestic producers would be happy to see that percentage reduce if it meant the overall ‘cake’ was getting bigger,” said ConFor’s spokesperson. And he added that share had been rising over time anyway on the back of increasing domestic production and log availability, thanks to last century’s plantings coming to maturity.

“People are simply thinking very short term and getting what they want very quickly from domestic producers – that’s played to the strengths of UK sawmillers,” said the UKFPA.

Just-in-time deliveries are very much the modus operandi of sawmilling today, so speed of response and availability are key. “If you look at your core stock of 90 items and you’re out of five of them you won’t pick up the order,” said a sawmiller. “So you have to have the ability to respond really quickly and put those five items back on the ground.”

There is, he said, a reluctance for customers to “load up their yards with stock”, so while they may be ordering the same volumes over the course of a month, they’re now doing so in three job lots.

Sawmills’ stocks

The sawmills themselves are also moderating their stock levels, denoting, perhaps, a lack of confidence in the market going into the traditionally quieter holiday season.

“We don’t have a great deal of stock and if the market were to suddenly take off we’d only have enough to fulfil our existing business and wouldn’t be able to fill any gaps,” said one, adding that there was some talk in the industry of starting to reduce production.

For the moment, however, output is strong. “Generally speaking they’re all doing well – and some are doing even better, reflecting which sector of the market they’re selling into,” said ConFor’s spokesperson. For example, carcassing and pallets and packaging are steady, though expected to weaken, while fencing has already come off its peak. The exception to this rule is agricultural fencing, which remains “a bright star”.

“Demand continues to outstrip supply, prices are stable and our order book is very, very healthy,” said a sawmiller. “Our order book for agricultural purlins has gone out from three weeks to about eight weeks – it’s the longest it’s been in a couple of years.”

Looking ahead the sector is planning to don its collective tin hat. “I think some of the optimism in the trade was just that – the triumph of optimism over reality,” said a sawmiller. “Our view is that the level of demand we currently have is what we’re going to have to go with for the foreseeable future. We don’t see any significant drop-off, but we don’t see anything that’s going to improve it.”

“It’s going to be a bit of a battle because demand is so down at the front end,” said another. “It’s going to be a quarter of extremely hard work to keep things going.”