The hardwood sector anticipated life in Q4 2022 into early 2023 becoming more challenging and for most, it seems, it did. Against the backdrop of rising interest rates, inflation still topping 10% and the consequent cost of living crisis, the consensus among hardwood businesses canvassed by TTJ was that trade slackened from October.

The state of construction isn’t helping.

According to a report in online news magazine Property Notify “pessimism is seeping through the industry”.

“High mortgage rates and other cost-of living headwinds have led to delayed and cancelled sales, or forward projects being scaled back,” said the report.

The downbeat outlook was echoed by Construction Products Association economic director Noble Francis.

“The construction industry has enjoyed a buoyant two years and activity remains high for the moment,” he said at the end of January. “Overall, however, output is forecast to fall 4.7% this year.”

The perspective of hardwood businesses clearly varies according to customer base. One importer-distributor said they were seeing signs of new build weakening. But demand from manufacturing and joinery remained strong. “October was a bit weak, but most of our customers are back to ordering as usual,” they said.

Others saw market pressures mounting.

“It’s tough and staying that way,” said another importer-distributor. “Manufacturing is still active, but new build has slowed and merchant activity is very low. Buying is more hand-to-mouth with forward ordering reduced.”

An importer took a similar view. “It’s been a tough start to the year,” they said. “There’s lots of stock around and customers have been battening down hatches, living off inventory. Obviously they’re content in the knowledge that their suppliers have plenty of wood, so they don’t commit until they absolutely need something. As each week passes we’re getting nearer the time when stocks will level out and normalise. We’re seeing some gaps appearing now and we’re replenishing, which we weren’t doing up to Christmas. But customers report a very patchy start to the year.”

The consensus was that the home improvement boom that started in the pandemic and helped drive hardwood sales has worked its way out of the system.

“The Covid boost has gone,” said an importer. “During the pandemic consumers went a little crazy – now they’ve got the hangover. With the cost of living crisis, and now the energy price cap coming off exacerbating the situation, they’re clearly more cautious.”

On supply, the topic hardwood businesses raised most was the sharp reversal of price in US hardwoods in the second half of 2022.

“North America is difficult,” said an importer-distributor. “The market crashed in July and is still recovering.”

“US species have all seen a price slump due to over producing and weakening international demand. That is now levelling out and suppliers are talking up the market, but I don’t see much movement generally,” said another trader contacted by TTJ.

However, an importer did detect glimmers of a change in the situation.

“Up to Christmas we had suppliers climbing over each other to sell to us at a loss to maintain cash flow,” they said. “But indications are that the position is turning. There’s still enough KD inventory in the US currently, but green lumber and log availability has tightened. Mills have gone from having too much wood and nowhere to keep it, to facing a production slowdown because they can’t get the raw material. Suppliers remain keen for business, but the silly offers aren’t there anymore. In fact, prices for most items are firming. We’re only talking 5%, but what’s important is the change in philosophy that indicates.”

The European hardwood supply scene has generally been calmer.

“There’s still plenty of oak around, despite issues with Russia and Ukraine,” said an importer-distributor.

An importer agreed, but said at the same time European oak prices remained very firm.

“Across Europe, countries are experiencing the same issues as we are – energy inflation and labour shortages fuelling increased pay demands,” they said. “We bought oak from a Polish supplier recently and they said their energy costs were still rising and that their minimum wage increased 20% in January.

Like their counterparts in Croatia, they’re also seeing Ukrainian migrant workers returning home due to the war and now can’t get the people. So, while they’re building inventory, they’re holding firm on price.”

The position in European beech has been different. Availability has been tight, with the position exacerbated by logging restrictions in Germany due to insect infestation. Consequently, it’s reported, prices went up 10% in January.

One importer, however, said UK demand for beech was now softening.

“It replaced American poplar when it was so expensive. But now poplar prices are down again, beech consumption has declined.”

In terms of logistics, Africa hardwood supply is reported to be getting harder, while the disconnect between spot market and forward ordering is described as “amazing”.

“If you talk to some UK timber traders, there’s no problem with sapele and a lot of wood arrived before Christmas,” said an importer. “But if you try to make supply contracts for Q3 it’s not easy. It’s a strange one.”

There are still some cheap sellers in the market, but African prices are generally reported firm and likely to remain so. Producers overheads are rising, driven by fuel and energy inflation, and output is being affected.

“One supplier said their energy costs increased 25% in January,” said an importer. “People are having to make decisions as to whether they should cut back harvesting, reduce mill production, or slow kilning.”

A 5% increase in Cameroonian export tax is adding to pressures, while iroko and sipo are reported hard to find.

The key topic in Asian trade is the slide in freight rates. One importer reported container rates down from US$18,000 in the health crisis to US$1,800.

“The FOB price of Malaysian timber generally is up 4-5%, but, thanks to freight rates on a CIF basis it’s significantly down,” they said.

Another issue in Malaysia has been a logging moratorium following heavy rains.

There is also uncertainty in the Asian decking trade.

“With Siberian larch out of the picture – and there must be very little left in the UK – our customers are saying theirs are sitting on the fence as to which alternative to go for,” said an importer. “Do they go for western red cedar, which is expensive, or modified, or tropical. Decisions are being delayed.”

On South American grandis, one importerdistributor said it was “in plentiful supply, if you like 4/4”.

Another issue that has arisen in tropical timber has been the listing of additional species by CITES at its COP 19 meeting in November. Affected species are khaya, padouk and afzelia/doussie, with their Appendix II listing implemented 90 days after COP 19, and ipe and cumaru, where the listings come into effect 24 months after. The view is that this will impact more on the trade elsewhere in Europe where these species are more popular – and, indeed, the CITES ruling has been questioned by various bodies there (see accompanying report below). But it will mean some UK hardwood companies “having to jump through more hoops” said one importer. They also cautioned that sapele is now on the CITES ‘watchlist’.

Accoya supply is expected to improve now the fourth acetylation reactor has come on stream at producer Accsys Technologies’ Arnhem plant. Although some UK importers felt the market for it may take a while to recover after the reduced availability during the expansion work.

Views are mixed on progress in introducing secondary tropical species. Some say they’re making little head way, others say they’re continuing efforts to develop the market.

Opinions are more upbeat on prospects for engineered tropical and other hardwoods. One importer sees good prospects for African hardwood scantlings. Another described engineered hardwood products as an “ever increasing market”.

An importer-distributor said it remained a challenge to persuade customers to “visibly” pay more per m3 for engineered product that “need evidence of savings” they can make. “But, if employment levels stay as they are, then manufacturers will need to be more flexible in processing, which is when engineered options rise to the top,” they said.

According to an importer-distributor, 2023 overall will be “a tough old year”. “We’ll have to be more innovative to capture market share from competitor industries and in particular engage with specifiers to have our products selected,” they said.

Another saw demand and supply becoming closer, so success “would all be about service levels”.

An importer said they were somewhere between “cautious optimism and positive pessimism”.

“We made sure we didn’t miss opportunities by being too negative, but we knew the market was bound to plateau, so budgeted for it. Consequently our business is in good shape; cashflow is strong and we’re comfortable with stock levels,” they said. “Going forward the market is difficult to judge. The key will be keeping tight with customers and suppliers so everyone is informed. Our view is that if you think you’re going to need it, buy it. If not, don’t. It’s not a time to speculate.”

NEW TIMBER CITES LISTINGS CRITICISED

Question marks have been raised by leading Belgian academic and research body, the Gembloux Agro-Biotech faculty at the University of Liege (GBA), over latest new timber species CITES listings. Criticism has also come from French timber trade body, Le Commerce du Bois (LCB).

The listings were passed at the UN CITES COP in Panama in November (COP 19). They include ipe (Handroanthus, Roseodendron et Tabebuia spp) and cumaru (Dipteryx spp). Following a 24 month transition period, they will be included in CITES Appendix II from February 23, 2025/November 2024.

The other new listings are afzelia/doussie (Afzelia spp), padouk (Pterocarpus spp) and African mahogany/khaya (Khaya spp). They will be listed, after a 90-day transition period from the initial announcement, from February 23, 2023.

Under the CITES rules, international trade in these species can be authorised, but requires an export permit, or re-export certificate from the third-party country and an import permit issued by the appropriate body in the importing country.

LCB commented that, while trade in listed species is permissible, listing has “significant trading impacts”, imposing “administrative barriers to exporting and importing Appendix II classified species”.

“For species newly listed on CITES, producing countries must publish their Non-Detriment Findings (NDTs), to establish trade quotas,” the organisation added. “This may also take time and the 90-day deadline for some species will certainly not allow producer states to do this. For example, Gabon estimates it won’t be able to publish its NDTs until the end of 2023.”

For EU importing countries, LCB added, the transitional phase until entry into force of the CITES listings is also “likely to raise practical questions”.

“For example, what is the status of goods already in transit without a CITES export licence, but which would arrive in the EU after February 23, 2023?” it said. “We will question the competent authorities in France to get an answer on this.”

It said that Appendix II listing will also lead to administrative burdens because valid export licences often expire while importers wait for import licences to be issued by their state’s competent authorities.

LCB said it recognises the essential role of CITES in protection of species threatened with extinction. However, it questioned the ‘”legitimacy of the latest inclusions of certain species in Appendix II”. It also highlighted that GAB is looking into this and “sounding the alarm” on the recent listing of padouk and doussié.

Professor Jean-Louis Doucet at GAB, president of the Care Forest is Life project, was quoted as saying that, not only could producer countries not draw up their NDTs within the implementation transition period, but also that the CITES listing of these species was “disappointing”. He maintained that, while additional management measures were justified for certain commercial species, this should not include padouk and doussié. “These targets were badly chosen,” he said.

He added that the first “victims” of the new listings will be “companies committed to sustainable management, including FSC or PEFC-certified companies that export part of their production to Europe”.

He said Gabon will be among the first supplier countries affected. “Gabon forestry companies been faced with a doubling of energy prices in six months, making exploitation of most forest species unprofitable. Currently, only a handful are still being harvested, including padouk and doussié. To restrict their international trade is to put a noose around the neck of good forest management students.”

Dr Grace Loubota, who implemented the CARE project, with funding from the Programme for the Promotion of Certified Forestry (PPECF), shared Professor Doucet’s concerns.

“Neither padouk nor doussié are threatened and logging them will not jeopardise their populations in the coming century. Their population densities are sufficiently high and these two taxa regenerate without difficulty,” said Dr Loubota, adding that these timbers had been listed because of the “difficulty of differentiating them from species considered threatened”.

Professor Doucet said that the additional trading costs imposed by CITES listings of these renewable species could also lead to supplier countries switching to cultivation and export of other commodities, such as palm oil. This risked further forest conversion.

“This catastrophe could be avoided if we finally recognised the real virtues of tropical woods, whose image has been tarnished by decades of misinformation,” he said