Among the increasing volumes of unseasoned softwood held at the quayside is a percentage of redwood which is discolouring due the warm humid weather. This situation, combined with bouts of rain, is causing an accelerated degrade to the timber, forcing some importers to offload stock at reduced prices before the deterioration becomes too great for the goods to be sold.
The result is a weakening in the price of unseasoned stock of £2-4/m3. These deals are creating a false climate, leading merchants to believe that shippers are cutting prices, when in fact the mills’ price in euros is holding firm.
Further rises in oil prices are once again pushing up sea freight costs. One shipping line has already declared an increase of £4-5/m3, depending on the port of discharge, and this will be implemented on October 1. At the time of writing, oil prices had reached US$680/ton. The last price adjustment was made when prices reached US$400/ton in January, so it is not surprising that shipping lines are demanding adjustments now.
Housing market
The slowdown in the housing market has now reached all areas of the UK, reducing demand for structural timber and creating a knock-on effect which is being felt by other wood-based industries in the furniture and joinery sectors. With a slowing economy, UK buyers are preparing themselves for tough negotiations over forward contracts. Although the trade is aware of the rising costs of logistics, there could not be a worse time for shippers to be asking for increased prices.
The advent of higher log prices, combined with sharp freight increases, are an unwelcome prospect for those Latvian mills which just concentrate on producing basic softwood specifications. With the addition of fierce competition from both Russia and Sweden, price increases look even harder to achieve, so many Baltic producers are actively searching for better markets and value-added processing.
Japanese market
During September, a Latvian delegation is travelling to Japan to explore the possibility of increasing sales there, as the Japanese are prepared to pay higher prices than the UK and Continental Europe.
Prices of dry-graded C16/24 have remained fairly stable over the last two months, only easing back by £1/m3, if at all. However, the Swedes are expected to offer parcels below current levels to increase their UK market share, in order to compensate for other markets which have weakened. Following the massive level of storm damage in Sweden, supply still remains an unknown quantity. While there does not appear to be a glut of Swedish softwood ready to hit the market, significant volumes of sawlogs have been extracted from the forests and kept in log ponds for conversion into sawn material.
The proportion of wind-thrown softwood in the Baltic region suitable for sawlog conversion has been working its way through the system and it emerged that the ratio of redwood to whitewood logs did not greatly vary from the mix prior to the storms. The extra material that did become available simply eased prices down to more realistic levels for the mills. However, looking forward, all contacts report that there will be a shortage of fibre from November onwards when current stocks become exhausted, and many sawmills will revert to a reliance on cross-border supplies from Russia or be forced to pay premium levels once more.
Although a few companies are bucking the trend in the UK, the majority of traders are unanimous in their view that sales are failing to reach expectations, and the trade is facing a difficult period which is likely to get tougher in the months ahead. In such an uncertain market, buying for the third quarter will become more hand-to-mouth, with a greater emphasis on landed stock. Many buyers are already trimming volumes in order to keep a tight rein on their inventories. Unless there is a significant weakening in the value of the euro against sterling, Baltic shippers will have a difficult time persuading UK customers to pay any more for their wood and may be forced to absorb a proportion of the increased costs.
