Summary
• Buying is in low volumes, as and when needed.
• The lack of credit availability and credit insurance is the major issue.
• African sapele is leading returns to forward ordering.
• Temperate species continue to dominate market share.
• Demand for certified hardwood has fallen.

The state of the UK hardwood market was summed up for TTJ by a senior industry figure who said: “We use the word unprecedented a lot, but it’s true. We’re used to cycles, but we never predicted this global wobble; this is completely new”. However, the same source echoed others in saying that while demand for hardwood in the UK had shrunk, it appeared now to be stabilising at current levels, with timber consumption slow but steadying.

Accompanying the downward trend in demand, the prices of “species across the board” are reported to be falling. Opinions varied on the pace and extent of the falls as strong competition to offload stock has distributors outbidding each other to sell wood below replacement cost. Simultaneously, reports of dumping are common and speculation as to levels of landed stock is fuelling trader uncertainty. The market for the most popular hardwood species is skewed, with excess landed stock compared to demand levels leaving agents struggling to find buyers willing to pay the asking price from both temperate and tropical sources.

Forward purchasing remains at the lowest levels several companies said they had seen, although some agents reported a small return to orders compared to a few months ago.

Generally, it is understood the buying is in low volumes as and when needed. “The situation is not conducive to large volume orders,” an agent said, “no one wants to stick their neck out and take a gamble when prices are so unpredictable.”

Exchange rate problems

The exchange rate was also described as “a huge issue”, with the impact of the weaker pound proving very difficult to pass on to the end users.

The lack of credit availability and credit insurance has emerged as the biggest issue for everyone in the market. According to one source: “Finance for the sector has never been brilliant and a lot of businesses operate with cashflow problems. At the moment even the most responsible companies are having their lending and credit insurance questioned.”

One agent went so far as to say a lack of consumption was not the issue, but “fair-weather credit insurers” who were necessary to facilitate trade and were “running for the hills”. “It’s an absolute nightmare, a year ago sterling was fetching US$1.90 and e1.30, which compared to now means you have to find about 40% more on your bank facility just to stand still, but banks won’t increase company overdrafts.”

A typical comment from an importer was: “No one is looking to turn a profit this year, it’s all about minimising losses and staying in business. Sustaining a cashflow until things pick up is the goal”.

Tropical shortages

Much interest has turned to African sapele, a species said to be leading a return to forward ordering.

Traders expect to see shortages of African species emerge in line with cuts in supply, due to mill output reductions and closures. As a result, these are seen as attractive forward buying options, with the turnaround to boost production, when it comes, expected to take longer in Africa than elsewhere, pushing up prices for “bread and butter” joinery items like sapele where demand is most likely to remain constant.

“We’re already starting to see the pressure on prices to increase in the thicker sizes; anything over an inch-and-a-half really,” said one importer. “These are being given an added push by the time it takes to dry the timber.”

Agents described the situation with sapele as a bounce-back from artificially deflated prices, which had come about as excess stocks were being sold-off to generate liquidity as the global credit crisis impacted. “Many sawmills in West Africa could not sell sapele about six months ago because it was underpriced in Europe. Prices are rising because supplies in Europe are going down, although, saying that, prices in Africa are not going up because there is still more wood there than consumption.”

Another expert said it was becoming more difficult to access African species, including okoumé, iroko, sipo and wenge, “which would make a difference to prices, if people were buying. Landed stocks need to start falling before it makes a difference, but eventually importers will need to buy and we will see some species rocket in price”

Distributors agreed that the normal basket of tropical species was still in demand, although at generally weak prices.

In South America hardwood sales are being propped up by domestic markets, such as Brazil, which some UK agents believe are willing to pay more, evidenced by the fact that importers are demanding, but not receiving, cheaper prices.

An agent said: “I’ve got a lot of South American wood on offer to me that I can’t sell, some of the South American suppliers won’t accept there is an economic crisis, it seems quite extraordinary.”

Temperate species

In terms of the trade of North American timber, demand is slow but there are some positive signs, with one trader pointing to “little flurries of activity”.

While speculation is rife as to the available levels of landed stock, an expert said the indication was there are still “reasonable amounts” of US white oak around, and it was being purchased in small amounts to top up stocks.

The decline in the value of sterling against the dollar has been countered to a degree by price drops from the North American side, with stump prices in the US reported to be coming down for the first time in many years. However, importers say they’re still generally unable to pass on increased costs and margins have diminished.

And, as with the case in Africa, production has been cut significantly in the US and experts are now watching carefully for signs that prices have bottomed out, or even starting to rise.

“At some time things will have to turn, with such long lead times there will have to be a change, I’d predict it will be in 6¼in and 8¼in white oak,” an importer said. “We’re still seeing four quarter white oak under price pressure though; there’s a need to keep inventory moving to get cash in”.

Another importer said extreme price volatility due to factors like mills dumping stock and exchange rates was now less of a concern than the fierce competition to distribute inventory and stay in business.

Of course, the pound has struggled against the euro too and traders say that, if anything, this has hit their European white oak business relatively harder than American.

Of the various temperate species, white oak naturally remains the big seller, but maple, cherry, tulipwood and ash are all still said to be finding markets. The first two of these are said to be commanding slightly more market share than the others, but one trader also said ash is having ‘a bit of a revival… perhaps because it represents good value at the moment and is a versatile wood”.

Certified wood

According to sources, demand for FSC and other certified woods continued to drop in recent months and it has become increasingly difficult to get a premium for the products.

“Conscience seems to go out the window as soon as a financial crisis hits,” said one company. “Now no one seems willing to pay a bit more if it’s not absolutely necessary. The main problem is that the end users don’t know that this is available to them and do not demand it.”

However, another supplier said he expected the UK government’s April 1 changes to its timber procurement policy will drive the market for certified products.

The policy demands all timber and wood-derived products for government projects must be from independently verified legal and sustainable sources or timber sourced from a country signed up to a “Voluntary Partnership Agreement” (VPA) under the EU Forest Law Enforcement, Governance and Trade” initiative (FLEGT). Currently the only supplier country with a VPA is Ghana. Cameroon was predicted to secure one sometime this spring and Malaysia later in the year.