The UK softwood industry has been hoping that time lost during the winter because of bad weather would be made up by the construction industry during the spring and summer.
Rainfall and flooding caused many projects to be abandoned, and the timber industry has been relying on a release of pent up demand.
Business has been improving considerably through May and June, and traders are reporting that sales are better than at the same time last year. But there is also an acknowledgement that the figures have not compensated for the downturn in trade which began last September and continued into the first quarter of 2001.
As one importer summed up the situation, ‘we are making hay while the sun shines, but there is still a lack of confidence in the longer term market. Although sales are buoyant there are no signs that we will make up for the lost turnover from last autumn and winter’.
Booming sales
However, in one product range sales are booming, and that is timber decking. Several UK importers report almost unlimited demand, and one agent specialising in Russian decking specifications confirmed that he had been swamped with enquiries. He was barely able to satisfy the increasing demand from his regular customers who were all selling as much as they could get their hands on.
Most of the popular decking sizes are missing from stock lists which are circulating on fax. In particular, 38x125mm has become difficult to obtain, and this confirms the high level of current demand the industry is experiencing.
This impetus in the decking market, which derived from the garden design programmes on national television, has also helped to drive up sales of treated softwood. The public is becoming increasingly aware of the flexibility of wood as a material when designing and landscaping their gardens, and this has given sales a real boost.
In the carcassing markets, currency exchange rates are still holding sway as the deciding factor between fortune and failure. The dollar-linked shippers in the Baltic states are being stretched further than ever as sterling has been slipping to levels below US$1.40/£1, while the Swedes are taking advantage of exchange levels of just under SKr15/£1.
This positioning is now favouring Swedish exporters to the point that Baltic producers of dry-graded are virtually unable to compete against them in the UK market.
One agent commented that ‘when figures are available for the second quarter of this year, it is expected that the volume of Latvian softwood exported to the UK will have fallen considerably against the same period of 2000’.
The problems are not deterring all the mills, however; some producers report that they are out-sold until August and they were achieving modest price increases.
Some Scandinavian shippers have been offering carcassing right through to the end of September at current price levels, but UK buyers have been hesitant to commit themselves to contracts beyond August.
This reluctance to go forward displays a lack of confidence in the longer term market and, for the time being, UK importers are continuing to buy on a hand-to-mouth basis.
Too expensive
Examining the log supply situation confirms that there are no particular problems with availability, but prices are still regarded as too expensive.
One agent commented that Swedish log prices had fallen by the equivalent of £1/m³, but he felt that a reduction of 10% would be needed to balance the losses that the sawmills are reported to be making.
Overproduction is still being blamed for the low price of carcassing and whitewood boards. The large integrated forest products groups are receiving criticism from the timber industry for subsidising losses made by their sawmills from the profits gained from pulp and paper, thereby keeping softwood prices unrealistically low.
The production of whitewood in Archangel has been rising steadily and there is evidence that some investment has started trickling into the old mills. One agent recently returned from the area said that during the past three to four years he had witnessed the reinstatement of several sawmills, taking the number from only six to a current level of around 20 producers.
The production of 47mm thickness unseasoned stock has been increasing steadily and this is posing added competition to the Baltic shippers who are dominating this market.
However, the length specifications are very limited and are not easily matched to buyers’ needs. A traditional mentality still exists in the local industry which does not wholeheartedly want to produce what the customer really wants.
Also, returns from sales at current sterling levels are regarded as unsatisfactory, due – once again – to the dollar conversion rate.
As one agent described the situation in the Archangel region, ‘whoever can crack the length tally, will be on to a winning formula as far as the whitewood market is concerned.
‘When the mills can also produce dry-graded spruce in volume, there could be another revolution – in the carcassing market this time’.
Everyone in the industry agrees that Russia has the potential to dominate the softwood market: the forest resources are vast and the quality of both redwood and whitewood fibre is arguably the best in the world.
Risk factor
It is the need for finance and investment which is holding back production, but the risk factor associated with Russia’s political history is a consideration holding back investment. The Russian banks are improving their support for the industry but loans are still reported to be difficult to obtain.
The redwood market has remained steady but prices have continued at disappointing levels. One agent said that most of the Scandinavian shippers he had spoken to were resigned to the fact that there would be no chance of a price increase this year. He also said that one of the Swedish mills producing both redwood and whitewood was cutting back on production by 50%, and there were others hoping to take similar steps. Overall there are few gaps in Scandinavian specifications and at present there are plenty of redwood boards available. It is only the larger mills who have sold a higher proportion of their 19mm and 25mm sideboards to the DIY markets.
Another agent commented that MDF had impacted on demand for redwood and that some of the importers had replaced up to 20% of their purchases of softwood for architrave and skirting with pre-moulded and factory primed fibreboard profiles.
Gaining ground
MDF has also gained ground against softwood for door lining sets, which were traditionally produced from sawfalling quality redwood and whitewood in 32mm and 38mm thickness. In terms of new housing, it is unusual today to see any softwood window boards on site at all, they are nearly always MDF.
Turning to other markets in central Europe, Dutch importers are reported to be ‘full up’ with stock, and the demand from Germany is still weaker than normal. France has been fairly active but things are slowing down as the summer holidays are looming. It is only in Belgium that reports speak of strong demand, and there are enquiries circulating for prompt cargoes because importers are under-bought.
An agent who was discussing the European markets with his Swedish exporters sales office said that demand for redwood from Spain had been good and prices reached were satisfactory. He added that most of the European markets were under-bought and if the producing mills could cut back production to equate more closely with demand, prices could at last begin to rise.
One agent dealing in Baltic and Russian products said his shippers were turning down cheap offers and were no longer prepared to trade at a loss.
He said that ex-quay prices had firmed, with little to no resistance from UK buyers and, against other people’s predictions, he expected to see a general rise in the market price of softwood of between 5-7% by November.
Mill closures
Finnforest has announced it is to close 11 mills in a bid to stem overproduction and that the pulp market was weakening, thereby cutting the level of forest extraction and the availability of saw logs.
To summarise, there has been little change in the market since the last softwood report. There is substantial oversupply in both pine and spruce and prices are still at rock bottom levels.
Demand in the UK has picked up dramatically in May and June, which was anticipated to happen in the wake of a poor autumn and winter last year.
All eyes will be on the US market and its effect on the global economy as the year progresses but, for the time being, everybody is working flat out to get seats on decks.
