Since redwood production was hit by the disputes in Finland during May, specifications have remained tight, with some dimensions – such as 32mm thickness and wide unsorted boards – becoming difficult to obtain. Most of the Nordic production units are still trying to catch up with contracts placed earlier in the year, and some mills are unlikely to be back to normal until the end of October.
The price increases obtained during June and July have held firm so far, with some shippers achieving an extra £3-4/m3 for sizes which are in short supply. Even with these improvements, the shippers have still not managed to claw their way back to the levels obtained earlier in the year. The main reason for this lies with demand, which has been disappointing by most people’s standards.
Although some Swedish shippers have kept their sales figures up by taking advantage of Finnish production problems, many UK traders have seen a reduction in sales of anything between 10-20% depending on which sector of the market they are relying on. Certainly the furniture industry has been hit by a downturn in consumer spending, but now the trend has affected the DIY market with some of the major players, such as B&Q, announcing cutbacks and reduced profits.
Most contacts attribute the stability in redwood prices directly to shortages in supply; very few have any confidence that demand will strengthen for the rest of the year. The picture is very similar on mainland Europe, where shortages have pushed up prices, but overall demand has reduced importers’ sales and margins.
Looking forward to the first quarter of next year, picked redwood specifications will attract a further increase in price, possibly by another £3/m3, and particularly from buyers who must maintain continuity for production and manufacturing purposes. Everybody would like to see these increases become sustainable over the longer period, so prices will probably rise by small percentages on a regular basis, rather than all at once.
Turning to Russian redwood, some importers have commented that arrivals have been on target, while others have reported that redwood volumes have been down and having a direct impact on their sales. The markets of North Africa and the Middle East are improving all the time and, as a result, large volumes are being diverted away from traditional buyers such as the UK on a regular basis. One shipper commented that these countries have transformed in recent years into serious and regular buyers.
However, things develop in this area, and the wider the global market becomes, the less chance there will be that overproduction and subsequent gluts will force redwood prices down in the future.
Carcassing market
The UK carcassing market has been in a tentative state since demand began receding in August. But the wave of cheap offers from Swedish mills widely circulating during September took many traders by surprise, particularly as they came at a time when prices from the Baltic states had started increasing and sea freight and road haulage rates were escalating on a global scale.
Although Swedish wind-thrown material was expected to hit the market at some stage, probably in the low grades and in limited specifications, few people expected to see C16/24 whitewood dry-graded material being offered at prices between £5-8/m3 below the market level. Some offers for smaller parcels were even cheaper, with shipments offered right through to the end of November.
Not all the Swedish mills have cut prices, but the ones which have are in danger of undermining the market for everybody. Most agency and importing contacts said that these prices were unwarranted to the point of being irresponsible.
A Swedish contact said he was not surprised to see some shippers looking for extra sales, because prices on the US market had come off the boil. He also commented that even at the reduced levels, returns were viewed at the time to be better in the UK than the US.
However, the hurricane damage to buildings in the southern states will undoubtedly create an increased demand and, as reconstruction begins, timber prices could rise accordingly. Analysts predict that the effects of the storms will increase demand by approximately 2%, but in other states away from the troubled areas, there has been a sharp reduction in housing starts which could well negate the situation.
There has been a significant increase in the volume of imports to the US from Europe over the past year, combined with a rise in production of machine graded softwood in the US and Canada. In the first half of 2005, Sweden more than tripled its exports to the US against the same period in 2004, and Germany, the largest single European supplier to the US, increased its volume by some 30%. These factors will have a bearing on what happens to the US lumber market and, in the coming months, have an effect on global prices.
Problems for Latvia
This recent course of events has made an already difficult position for Latvian shippers much worse. In a bid to keep ongoing business with their regular buyers, some shippers have already been shouldering a percentage of increased freight costs caused by rising oil prices. Now that increased log prices are also beginning to bite, costs for November production have started climbing dramatically, and the mills will have to obtain higher prices from buyers to remain solvent.
A growing number of Baltic producers are turning their production over to planed/regularised goods, for which there is a growing market among the merchants. They like the presentation, and are willing to pay an extra premium as the customers tend to prefer the product, when given a choice, over the ordinary sawn finish.
While most contacts in the merchant sector are aware of the anomalies in the supply chain, issues such as specifications and availability are still more important than price fluctuations. Also, with a general lack of confidence in demand for the rest of the year, they are busy focusing on overheads and running costs, particularly as transport has become such a major issue due to the price of road fuel. Very few merchants make a charge to their customers for delivery but as the costs are now becoming so significant, some have revised this policy and have found that customers will pay the extra.
Although it has taken three years more than expected, the demand for engineered wood as joist material has affected nearly all merchants’ prospects to maintain sales of traditional graded solid wood. This has now been felt and acknowledged right through the supply chain to the point where as sizes such as 47×200 and 225 have become less in demand.
CLS demand
The success of timber frame construction in Britain has boosted demand for CLS studding, which is still enjoying a period of growth. More and more Baltic mills are producing CLS, having found that the returns are better than for sawn and graded stock, and there are increasing opportunities to make improved margins as designers are specifying new and larger sizes for studs and framing.
To summarise the current situation, the redwood joinery mills are just about catching up with earlier contracts and are fairly confident that prices will begin to rise in the first quarter of next year. Carcassing producers, on the other hand, are struggling to maintain prices while costs are rising. Adding extra value to their products is now being seen as the only way forward.
