With less timber in the pipeline and a strengthening of other European markets, UK buyers are having trouble sourcing all their requirements ‘just in time’. Many are being forced to return to placing forward contracts, something which normally suits the exporting sawmills, as they have a better chance to control and plan by matching production buyers’ specifications globally.
Few Baltic shippers can cover detailed specifications in under six weeks and many Latvian producers are trying to catch up on old contract balances which are now several months overdue.
Log supplies remain difficult and there are reports of whitewood shortages across northern Europe. Both Baltic and Swedish mills are producing higher volumes of redwood carcassing, but UK buyers remain wary of the potential discolouration in pine and prefer to hold out for spruce where possible.
There is still evidence that rogue parcels of visually dry-graded redwood with major defects have been shipped and stamped C16/24. This problem appears to track back to small feeder mills which send production to larger branded shippers which accumulate quayside export cargoes. These defect-ridden parcels involve a great deal of time and expense in re-grading, not to mention in making a claim. And the importer is left with the dilemma of what to do with the rejects and how to gauge their impact on the volume of bona fide material received.
Exploiting Latvian sources
A number of agents say that Latvian sources of best quality logs have been exploited to the full, and the quality of larger sized sawn specifications is likely to fall over the next few years. But this problem is unlikely to affect production of CLS stud sizes as raw material log sizes are smaller and, of course, mills prefer to produce CLS as returns are better than on ordinary sawn stock.
Volumes on the quayside at Riga are reported on the low side and shipping companies are being forced to call at half a dozen berths to load enough cargo.
Prices for Latvian dry-graded have risen over the year by approximately SKr75/m3 and some agents believe that this figure could be repeated during the first quarter of 2003. Swedish prices have settled higher than Baltic, giving a differential of around £5-6/m3 for whitewood.
The Swedish raw material situation is not as acute. There are better supplies of sawlogs but not all mills have access to them at affordable prices. There is a ‘bullish’ attitude amongst the shippers and, so far, production is reported in line with demand.
Although the UK trade seems to be busy, some importers have commented that demand has not strengthened enough to warrant a price rise and they remain sceptical about softwood shortages continuing in the winter months when felling conditions should improve.
However, most are now paying higher prices across the board for redwood joinery and carcassing and, if reason prevails, end users should see these feed through in early November.
Redwood joinery
Redwood joinery prices have climbed steadily and supplies are becoming limited in many popular planing sizes, particularly fifth grade boards and narrow 50mm specs.
Scandinavian agents report strong demand, but there are difficulties with log supplies at the mills. One agent commented that five to six weeks’ notice was needed before shipment and urged the market to go back to buying forward to ensure better supply continuity.
The US has continued to weaken and prices have fallen quite sharply. This has persuaded some European producers to ease back production for North American, which could, in turn, re-focus some volumes back on the UK.
US/Canada battle on
The US/Canada lumber import dispute rages on despite best diplomatic efforts and the American government is still applying both an 18.79% countervailing duty and an 8.43% anti-dumping duty on most Canadian imports. British Columbia and Québec are reported to be worst hit by these levies.
A way out of the problem is now being examined by the two governments whereby individual Canadian provinces will be able to modify log procurement methods, and prices in the forests will be more aligned to free market levels (the US accusation is that prices are effectively subsidised). The hope is that this initiative will start in November.
Meanwhile, Canadian stocks which swamped the US reloads have yet to be depleted and timber prices reflect levels prevailing before the full impact of the duties took place.
US lumber mills cutting home-grown pine have found it hard to cover costs, while large volumes from these parcels are similar to the ‘consignment stocks’ that many northern European mills dumped unsold on the quaysides around the UK, keeping prices artificially low and weakening forward markets.
In Russia, top level debate is still aimed at the overall performance of the forestry and wood processing industries, and the most recent conference to discuss strategic development was held on October 1 in Moscow.
Current thinking by the industrial, scientific and technological ministry is that there should be a significant rise in the export duties of logs, with a reduction in levies on value-added goods like furniture.
Russian sawlogs
Many Baltic and Nordic mills are purchasing Russian sawlogs because of supply difficulties at home, a move that may have serious repercussions for the Russians’ own future sourcing ability and production
volumes.
Despite this, there is opposition in Russia to increased tariffs to secure supplies for mills. The president of the Association of Timber Producers and Exporters, Miron Tatsyun recently declared that tariffs would harm the economies of the country’s eastern regions, including Siberia, where producers have very limited scope to produce more advanced products and rely on log sales.
China has also become a fast growing customer for Russian logs, with annual imports topping 500,000m3. And, at a joint conference in the north-eastern province of Harbin, Chinese forestry specialists said that they wanted to increase co-operation with Russia still further.
So it seems that a likely solution for the problem of Russian round timber exports could be that tariffs are placed on logs from north-western areas only, although such a move would have to be ratified at government level.
The global softwood market prognosis is that shortages in joinery and carcassing are likely to prevail for the near future – and recent price rises show no signs of slipping backwards.
Shippers are confident further increases will be achieved during the first quarter of 2003, probably by another 3% if nothing major affects the markets.
UK price increases
The time has come for prices to increase within the UK, particularly to the construction sector which is getting the best deal from timber suppliers since charges for grading and gauging were dropped over 20 years ago. At that time pre-treatment costs for CCA preservative were approximately £23/m3. Today the global price for such a service is rarely higher than £15/m3.
The solid timber joist business is struggling to pay its way, with I-beams continuing to eat up market share. The question now raises its head as to how the trade will manage to pass on the rising costs of graded softwood in what appears to be a contracting market, without sacrificing the quality of the product.
