It’s a sad fact that much time has passed since a British timber market report that didn’t contain dire warnings of elusive profitability throughout the wood supply chain.
UK sawmills have invested heavily in treatment, drying and machining technology to produce quality products of correct specifications that perform well in the intended application – whether it’s a pallet, a floor joist, skirting, a dining table or garden decking.
Recent times have taught that Gordon Brown’s budgets are unlikely to contain much in the way of surprise. This year was different, with the announcement that the previously touted 1% increase in employees’ National Insurance contributions was to apply to all earnings, not just those up to the £30,940 upper earnings limit; and the greater surprise that there would also be a 1% hike in employers’ contributions.
In its report to the May meeting of the Forestry Commission Advisory Panel (FCAP) Supply & Demand sub-committee, Forest Enterprise points out that, coupled with other measures, the rise in National Insurance contributions means that business will be paying £4.8bn or 80% of the £6.1bn net increase in taxes next year.
Additional costs
For the UK forest products industry, this additional cost will hardly be welcomed. Although the traditional spring upturn in demand has been seen in some markets for sawn softwood and panel products – especially construction, fencing and garden products – price competition remains fierce.
There have been suggestions that Scandinavian and Baltic softwood producers may seek price increases for both whitewood and redwood, but this has not had any impact on the UK market so far.
Competitive pressures remain a key feature of the market. With little or no price differential between imported and UK production on a grade for grade basis, the traditional preference for imported stocks among many buyers is prevailing.
Another key development is that some customer specifications are changing – from traditional ‘merchants’ specifications to ‘builders merchants’ specifications – which places further pressure on sawmills since additional operations such as resawing are required.
Demand for carcassing is reported to be generally reasonable, although lacklustre in some specifications. However, there has been a welcome upturn for fencing and other timber garden products. The palletwood sector remains difficult, with ‘very low priced’ Baltic hardwood continuing to displace UK grown softwood.
Continued decline
After five months of continued decline, Forest Enterprise says log prices took a slight upward turn in March, with Green logs at £29.76 compared with £28.48 the previous month and Red logs at £23.21 against £21.76.
However, there is generally a rise at this time of year so it is too early to determine whether prices are beginning to level out – certainly they are still below those of a year ago (Green £32.18 and Red £26).
Private growers in England and Wales report ‘steady but not spectacular’ demand for most standing timber on offer in the first quarter – with considerably higher volumes brought to the market, perhaps in anticipation of high prices.
Small roundwood, with the exception of round fencing, does not cover the cost of production and an alternative to chipwood is urgently required if thinning work is to continue. Hardwood pulpwood demand has been steady throughout the winter and is the one bright area in an otherwise gloomy small roundwood sector.
Power generation from bio-fuels still holds out some hope – but the Renewable Obligation Order 2002, which allows residues and recycled material to enter the previously protected bio-energy stream, is unlikely to help.
Scottish private sector
For Scotland’s private sector the first quarter showed little change from the latter part of last year. Demand for Green logs remained steady, although shorter lengths became increasingly difficult to shift, and prices fell again with limited reductions of between 1-2%.
Two of the most significant changes in the hardwood sector in recent years have been the reduction in the number of UK sawmills and, more recently, the displacement of UK grown hardwoods by imported temperate species, especially from Europe and also from North America. Price – aided by the strength of sterling – and quality have been the key factors.
The UK panel products sector reports reasonably strong demand, especially from the construction sector – but adds that competition from imported products remains equally strong.
It was a difficult first quarter for the worldwide paper industry, with production closures at various mills, but there is optimism about market conditions for the rest of the year. Exports of pulpwood are steady and there are brighter prospects for the export of sawmill chips to Finland.
