Summary

  • Russian redwood availability has increased.
  • Unseasoned specifications in full sawn sizes will become scarce by the end of the year.
  • Russian shippers are still paying high prices for logs.
  • The Russian domestic market has slowed.

The severe downturn in the US housing market has created a ripple effect, with producers trying to offload higher volumes into European markets. In the wake of substantial arrivals from eastern Canada, a sudden and last minute interest in the UK by a number of additional Austrian and German shippers has put even further pressure on prices.

Unfortunately, this has coincided with a general downturn in demand, and overstocking among importers has become widespread. This has resulted in all grades of whitewood suffering some reduction in price, and Russian whitewood in both kiln dried and unseasoned has not escaped unscathed.

Widespread flooding

Demand has fallen in whitewood joinery specifications, and in the UK, summer arrivals have accumulated due to the downturn in activity caused by widespread flooding. During the first half of the year when redwood specifications became scarce and prices were rocketing, some users turned to whitewood for planing. But in September redwood availability increased, traders switched back and whitewood volumes were left stuck on the shelf.

In the unseasoned market, prices have also dropped, but many Russian mills have reacted swiftly by cutting back production, and in some cases closing their operations altogether. With lesser volumes available from the Baltics, it is likely that unseasoned specifications in full sawn sizes will become scarce by the end of the year, particularly in fencing dimensions.

Faced with high carcassing stocks and an indifferent end-user market, UK traders have been fiercely competing with each other for business in a bid to balance and reduce their inventories. The chief problem in terms of oversupply is 45mm (fin) regularised dry-graded material, which has been churned out like spaghetti from all exporting countries. In some cases landed goods have been sold below the original cost, a marked contrast against the record level of stock appreciation last year.

Russia is not a major supplier of strength-graded softwood, with few producers of C16/24, and those mills that do produce structural graded tend to sell into specific areas of the market. But due to the pressure being exerted by the global situation, these Russian structural grades have been forced into a temporary price decrease along with other exports.

On the whole, the redwood market has remained firm, with only some modest discounting of around 2.5% to move items that have started to accumulate. Although the volume of landed stocks has risen across the UK, there are still shortages in specifications such as 32mm thickness. The decking size of 38mm is easily obtained due to the downturn in demand caused by the bad weather between July and September. Although redwood stock levels are reported to be high at the terminals, stocks in the merchants’ yards are on the low side because most of their finance is tied up in carcassing.

Russian shippers are still paying high prices for logs, and supply varies from region to region, but all of the mills are keeping their sawn redwood prices firm and in line with production costs. They all face the unknown winter weather factor, and a repeat of last year’s mild, wet conditions would reduce log harvesting again and lead to shortages. If the winter returns to normal and the ground freezes for long enough, then full production will be an option. It is the decision the mills take at that point that will decide the fate of redwood in the first quarter of 2008.

On the home front, the markets of St Petersburg and Moscow have slowed, and softwood prices appear to have levelled off after a sustained two-year period of growth.

Overloaded with timber

Elsewhere, markets in North Africa are still slow, and the quaysides in Egypt and Algeria are overloaded with timber. But during the last few weeks, some of the older contracts held back with Russian shippers have started loading after months of delay.

In the plywood market, the forward position for Russian birch plywood is bullish and prices are still rising. But on the ground in the UK, stock is being sold from older contract prices without the reflection of replacement costs. When the market eventually catches up, there could be a jump in price levels by more than 20%.

As far as softwood is concerned, it would only take a reasonable upturn in demand to balance the redwood market and keep it stable. However, it requires a stronger and sustained demand to absorb the backlog of whitewood sitting in the importers’ yards.

In order to alleviate the position further, a cut in production would be more than desirable.