Given the traditional sluggishness of markets during the summer, it’s no surprise to find there have been few changes in the conditions faced by the British timber industry since the last report in June (TTJ June 23).
There has been a paucity of good news for some time and it is hard to see how that will change in the short term since many of the industry’s problems are ultimately caused by factors outside its control – not least, exchange rates.
With the continued strength of sterling combined with a weak euro and Swedish krona, there has been no let up in competition from lower priced imports in all sectors of the market – carcassing, palletwood, fencing and hardwood.
The impact of exchange rates is also being felt in the panel products sector and as a result sawmills are finding that prices for co-products are falling as board producers seek to trim costs.
Although demand for construction softwood is reasonable, prices are ‘untenable’ according to the latest market report presented by the UK Forest Products Association (UKFPA) to the Forestry Commission Advisory Panel‘s supply and demand sub-committee.
Import competition
The market is ‘dominated’ by strong competition from imported material – mainly from Sweden and the Baltic states. UKFPA says the adverse impact this is having on sawmills is ‘extremely concerning’.
At the same time, the pallet sector is said to remain in a parlous state. Low priced parcels of mixed hardwoods are displacing UK softwood – with ‘almost unbelievably’ low prices from overseas suppliers, particularly in Ireland and the Baltics.
The fencing season started slowly because of poor weather, though demand increased as the weather improved. Continued coverage of timber decking on TV and in consumer magazines means demand for this remains healthy – but even here, the market is being supplied largely with imported redwood and volumes of British timber decking are lower than last year.
Neither is the hardwood sector escaping the impact of exchange rates. There is still demand for high quality timber, but inroads are being made by good quality, attractively priced material from Europe and further afield.
To cap it all off, prices for co-products are declining again. UK panel producers are struggling with competition from low priced imports and, in common with other sectors of UK industry, they are maintaining tight cost controls while at the same time maximising production efficiency. One UK panel producer recently announced significant job losses at one of its plants. A paper producer is also expected to announce job losses soon, though not on the same scale.
Order books for paper, cartonboard and fluting are healthy on the back of strong demand. However, producers say there are signs of a cooling in the paper sector in other producing regions, including Scandinavia, and this may affect the UK.
These market conditions are obviously having an impact on growers. The private sector in England and Wales reports ‘a distinct lack of activity’, with prices and demand falling for virtually all species and tree sizes. Harvesting has been hit by foot and mouth disease and poor weather and the market for most products is described as dull.
Larger tree sizes containing good quality sawlogs may sell if owners are prepared to accept even lower returns; but prospects for thinnings are uncertain as prices for chipwood fall and sawlogs are not providing enough income to cover the overall cost.
With the hardwood felling season about to start, growers say that quality parcels should attract bids – but that offers for lower quality logs are ‘unlikely’.
Foot and mouth
In Scotland, the slight optimism seen among private growers during the first quarter has evaporated fairly quickly in the early part of the second. Foot and mouth disease has limited harvesting activity – although this appears to be easing gradually.
Stocks at most processing factories have built to fairly high levels and there is again pressure on prices for small roundwood. With the problems facing the sawmilling sector, sawlog prices are also under extreme pressure – but further reductions will inevitably reduce supply, say growers, since they need to maintain a balance between income and restocking costs.
Falling prices are also reported by the state sector. The latest three-monthly prices from Forest Enterprise (FE) cover the period to June, and show Green logs down to £30.20 from £31.25 in May; Short Green logs at £25.32 (£25.54); and Red logs at £24.70 (£25.17). While this may be regarded as seasonal, since demand tends to slacken off at this time of year, the prices for Green logs are also significantly lower than in June 2000 (Green £31.52; Short Green £30.25; Red £23.98). This gives average prices for all log categories of £26.80, £27.58 and £28.42 for the three periods.
FE says it is too early to say whether prices have started to show a falling trend following a period of relative stability. However, the pallet market continues to be a real source of concern and current exchange rates, with Sweden in particular, are at an all-time low.
Standing timber prices have fared slightly better than those for sawlogs. There has been a decline over the past three months, but this remains in line with the seasonal trend. Current average prices are still around £1.30 higher than at the same time last year.
According to the Forestry Commission, Britain uses around 50 million m³ of timber, paper, boards and other wood products each year – some 85% of which is imported at a cost of about £8bn (the fourth largest single import commodity).
Production growth
The volume of wood supplied from British forests each year has more than doubled from 4 million m³ in the 1970s to nearly 9 million m³ today – and is projected to reach 15 million m³ by 2020. This offers further scope for investment by the British timber industry – in fact, £2bn is expected to be invested over the next 15 years (on top of the £1.6bn spent over the past 15 years) – creating many new jobs.
In the meantime, everyone from grower to processor is having an extremely tough time. Fierce competition from lower priced imports is hitting the UK softwood and panel products sectors hard and is also hurting the hardwood mills; and if the industry’s ability to pay for logs cannot match the aspirations of growers, then the future for supplies also looks uncertain.
More pessimistic pundits say the slowdown in the US and economic problems elsewhere will result in global meltdown. Others believe the UK economy is strong enough to weather the storm.
In its overview of the economy, Forest Enterprise notes signs of weakening investment growth and the harmful impact of the strong pound on many sectors of British industry. On the other hand, retail spending, household borrowing and the housing market remain strong, partly supported by recent cuts in interest rates.
However, there’s no doubting the damaging effect of current exchange rates and, until this changes, it is difficult to forecast any improvement for the UK forest products industry.
