The long-standing oversupply of redwood has been slammed into reverse by the industrial dispute in the Finnish pulp and paper industry. The knock-on effect of the dispute, which began in May, was to close production at the major sawmills throughout June.
As Finnish stocks became exhausted, buyers were left high and dry with contracts unfulfilled. UK importers and merchants began raiding shippers’ magazines and terminal stocks in order to obtain planing material and joinery sizes, creating shortages in specifications and generating a price rise across all grades.
Prior to the dispute, redwood prices had been bumping along at extremely low levels, with Russian fourths and Nordic fifths trading below the price of graded whitewood carcassing. The recent increases in selling levels have amounted to an average of around £5/m3, but in reality this is only a meagre clawback from better days when exporters were achieving a further £10/m3 on top.
With Finnish production on hold, Swedish and Russian shippers have benefited from an accelerated increase in market share from global markets as well as the UK. North African buyers have been taking up large volumes of redwood at more attractive prices than UK buyers will pay, and the restrictions on grading also allow higher yields. One large Russian importer said that increased demand from these other countries had reduced the availability of redwood significantly, and this, coupled with the seasonal switch to spruce production in Archangel, meant far less pine was being shipped than for the same period last year.
Although importers and shippers alike have welcomed the firmer prices, the downside is that there is very little volume left to sell at present, and the situation is not expected to improve until early September. One Swedish shipper said that as stocks had sold so well, there was little point in marketing redwood for the time being as there was not much to offer for the immediate future.
Inventories low
He also commented that UK inventories have been running too low for too long, and buyers have relied on buying just in time by shopping around without any back-up. In today’s market, as all suppliers are struggling to offer every item, even for single mixed trailer loads, many merchants will find it extremely difficult to get the specifications they need without some forward commitment. Even with this background of shortages, importers remain cautious as they perceive demand to be very uncertain for the rest of the year, and nobody wants to finance any more stock than they have to.
The housing market has slowed in most areas, and used property sales are very slow. Estate agents report a weakening in prices, and one commented that the market is the slowest experienced in the past 15 years.
The home improvement market, however, has performed well so far this year, as people are extending their living space and increasing their asset value rather than moving. This has helped many merchants to keep busy, and decking sales have exceeded most people’s expectations. The demand for wood as a landscaping material has given an extra boost to home-grown fencing producers, but supplies of feather-edge boards have been more difficult to obtain from Baltic shippers.
In the carcassing market, prices have remained firm, but those selling landed stock at the top end have been forced to ease their levels back by £2-3/m3 in order to compete. The variation between the terminal operators has narrowed from £5/m3 to around £2/m3 for dry-graded C16-24, while unseasoned prices are more reflective of whether the species are pine or spruce. There are some gaps in specifications, in particular 47×100, and lengths of 4.8m have been quite scarce.
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“Despite earlier fears that massive volumes of wind-thrown fibre would swamp the market, many mills are struggling to meet UK buyers’ specifications both in kiln-dried and unseasoned carcassing” |
Despite earlier fears that massive volumes of wind-thrown fibre would swamp the market, many mills are struggling to meet UK buyers’ specifications both in kiln-dried and unseasoned carcassing. Significant volumes were placed on the French and Middle Eastern markets earlier in the year, and the UK is unlikely to be affected to any great extent.
Since wind-thrown logs entered the production system, larger diameter material has been given priority over the smaller logs, resulting in a higher proportion of 200mm and 225mm widths. In addition, discoloured and lower quality material is arriving at the sawmills. This is leading UK importers to keep a closer eye on goods arriving from Sweden and the Baltics to ensure that both the bracking and condition of each bill of lading is up to normal standards.
Several agents have noted an increase in the number of complaints and claims recently made by UK importers, and payments have, on average, been slower than normal. However, agents have found the forward sales of carcassing grades to be reasonable, with shippers accepting contracts through to the end of September.
Market balance
Where redwood prices will settle when Finland returns to normal production is a matter for speculation and, for some Finnish sawmills, loss of revenue from lack of sales and production will be extremely serious. For the market to remain stable, a great deal will depend on the mills keeping a tighter grip on the balance between supply and demand and recognising the importance of producing specifications that buyers want. Far too often there is a tendency to whack large volumes through the saws, leading to a glut of middle cut sizes, which in turn drags the market price down. Length specifications are also important; too many 3.9m are being injected into the market from all sources as the mills seek to optimise the yield. But not only is 13 an unlucky number, it is a wasteful length for the building and construction industry, and in many cases merchants are forced to call the length back by 10% to 3.6m.
A large section of the sawmilling industry is currently on holiday, particularly in Sweden where the shippers left their mills on a fairly bullish note. While they relax in their summerhouses, perhaps dwelling briefly on where the market will stand on their return, sterling is beginning to slide downwards against the krona.
The effect of the slide will of course be to increase prices in sterling so, if the Swedish mills are looking for a better margin, or wish to maintain any recent price gains, they will need to make further adjustments to current levels to account for the exchange rates.
The problems they face will depend on the outcome of several factors: whether the Finns will offer cheaper deals to increase redwood sales in the wake of the dispute; whether the Baltic mills capitalise on the less volatile exchange rate between the pound and the euro and remain stable; and will demand from the UK and Europe as a whole be strong enough to encourage buyers to accept further increases?
If the outcome of these scenarios prohibits any price rise, then the Swedish shippers will be forced to absorb the currency movements and they will be back to square one.
