Biomass is the topic of the moment, with reports of increased interest in the use of wood fuels for electricity generation; news of the Forestry Commission‘s “ground-breaking” project to estimate the size of the available wood fuel resource; and rumours of a new power station at Lockerbie.

The latter is seriously good news. Although it won’t be up and running for a year or more, raw material requirements for the power station could run to half a million tonnes of small roundwood and sawmill co-products a year. It is a very welcome development at a time of rising concern about markets for these products – not least in Wales where growers, sawmills and harvesters (who have been encouraged to invest in modern equipment) are grappling with Shotton’s announcement that it will stop using virgin fibre in the near future.

Some reservations

The Forestry Commission study has been greeted with some reservations, with questions arising as to whether this really is “ground-breaking”. Some sources in the forest products industry suggest that the project has been started because of government pressure to develop biomass markets – perhaps spurred by Shotton’s decision and the recent liquidation of the Arbre Energy biomass generation plant near Selby, which is seen as a major setback to the UK’s renewable energy policy.

The Forestry Commission says the project will differ from other studies in that results will be linked to Forest Enterprise‘s forest database, with potential users able to access a website that will provide “at a glance, the wood fuel available from forestry and woodland, primary processors and arboricultural activities in each Forest District”.

However, there are concerns about how data from primary processors will be gathered, used and updated. How any accurate assessment of co-products can be arrived at is something to exercise the greatest minds – and if it isn’t accurate, the information could potentially mislead those considering investing in biomass plant.

There is certainly a great need for activity that will open alternative markets for co-products and small roundwood. Tensions are mounting as prices for co-products paid by panel board mills continue to fall and increasing volumes of recycled wood fibre displace co-products and small roundwood.

Second Scottish papermill

Private growers in Scotland are hopeful of an announcement regarding a second papermill at the UPMK Caledonian plant before the end of the year – but this is against a backdrop of increasingly difficult markets for small roundwood as growers compete against cheaper sawmill co-products at a time of reduced demand. The export pulp market has helped to some degree and, although this slowed over the summer, there are indications that the situation is improving.

Following good demand during the summer, traditional markets for UK wood products seem to have eased slightly in October, according to the UK Forest Products Association (UKFPA).

Construction softwood

In its report to the November meeting of the Forestry Commission Advisory Panel (FCAP) Supply & Demand sub-committee, UKFPA noted that for the first time this year, there is evidence of price rises for construction softwood following those seen in the imported timber sector.

Further increases are expected, but prices are “still behind optimum levels and reductions in log prices are required in order to restore profitability in the UK sawmilling sector”. Competition from imported softwood remains strong, particularly from Sweden, Latvia and Ireland.

Little change has been seen in the third quarter by private growers in England and Wales, who told the FCAP meeting that most end users were well supplied and that few standing sales had been offered. The backlog of parcels continues to grow as owners await an upturn in demand – but they expect a long wait.

Softwood sawlog demand is sluggish and unlikely to improve until the fencing season starts next spring; and with sawmills expected to see further reductions in co-product prices during the winter, growers are likely to face lower log prices.

Scotland’s private sector says the third quarter saw fairly stable markets, although prices continued to come under pressure. In general terms, demand has been steady, with the exception of the domestic fencing market which was hit by the poor weather during the summer.

Forest Enterprise confirms a continued downward trend in prices due to poor demand, particularly in Scotland. Average log prices hit an all-time low in September and, despite a slight recovery in October to £25.61, they are still more than 10% below the £28.76 achieved at the same time last year.

Poor prospects

Standing sale values have never been lower, in both real and nominal terms, and prospects for forthcoming sale events “do not look good, with customers pretty much bought ahead at present”. Forest Enterprise says the current slack demand is largely because of a “significant increase” in availability from the private sector.

Good quality hardwoods continue to sell well and the market remains buoyant. There is strong demand for oak – but significant volumes of French oak are now being traded in the UK and, in general, the market is dominated by imported temperate hardwoods.

The season for oak fencing was reasonable and markets for sycamore and sweet chestnut are reported to be good. There is also continued demand for mining timber, although prices are being squeezed and there is a possibility of industrial action by miners.

UK buyers are becoming increasingly selective in their purchasing and, as always, second quality hardwood is difficult to move.

UKFPA’s report notes with “particular concern”, news that Whitmore’s Timber Co in Leicestershire – one of the largest specialists in British grown hardwood – is to cease hardwood sawmilling. The decision was taken because of high raw material and production costs in the UK compared with ready availability of lower priced, consistent quality hardwood from the Continent. Another company, based in Kent, is also reported to be ending its sawmilling operation.

“This further and significant reduction in UK hardwood sawmilling (which is not expected to be reversed) is of concern,” says UKFPA. “Parallels can be drawn with the declining fortunes of many other sectors of UK manufacturing industry.”

Private growers in England and Wales told the FCAP meeting that the hardwood felling season was now in full swing – but with “ever increasing quantities of sawn material being imported and a number of key players ceasing sawmilling in favour of merchanting, the signs are not encouraging”.

Pallet and packaging uncertainty

Smaller diameter hardwood is moving to the pulpwood and firewood markets, but poorer quality stemwood remains difficult to sell.

UKFPA says there are no signs of upward price movement in the fencing or packaging markets. Moreover, there is continued uncertainty in the pallet and packaging sector about volume requirements for heat-treated timber for export packaging destined for China – with the Chinese authorities having implemented new phytosanitary requirements for heat treatment of solid wood packaging in advance of the anticipated international implementation in January 2004.

UK panel products manufacturers say demand remains fairly strong for many products, especially from the construction sector. However, prices are still depressed because of competition from imports. Despite the ready availability of relatively low priced recycled wood fibre in the UK, producers have to compete with manufacturers on the Continent who use recycled wood fibre that is obtained at little or no cost.

Northern Ireland industry

In Northern Ireland, the sole particleboard manufacturer has stopped intake of small roundwood and slabwood and is to halve its intake of sawmill chips, in addition to reducing prices for this material. Recycled wood fibre is displacing virgin fibre and this is expected to increase. This has serious implications for Northern Ireland’s forest products industry – and is representative of the situation faced by all UK wood based panels manufacturers as well as their suppliers in the sawmilling and harvesting sectors.

On top of everything else, insurance costs are becoming an increasing factor for the industry, with a dramatic rise this year. Premiums for employers’ liability insurance are said to have risen by 80-200%; and substantial increases in professional indemnity insurance have also been reported.