As the TTF Softwood Conference took place in London on March 4 it was still early days in the coronavirus crisis. It had not yet been declared a pandemic and only a couple of dozen cases had been confirmed in the UK. The optimistic commentators were still hoping for Europe to largely contain the virus, so it was not high on the agenda for the speakers on the day other than the fact that it would heavily hit shipping and logistics for materials bought from China.
There were other post-Brexit challenges to plan for and consider. The spread of the spruce bark beetle remained a pressing issue as did the continuing slump in Canadian timber production.
The overall picture was presented as a somewhat flat market for the coming year, with even the most optimistic forecasts mentioning a figure of just 1-1. 5% growth.
The opening remarks from Professor Noble Francis, economics director for the Construction Products Association (CPA) perhaps sum up the general view of the conference and the entire industry for 2020: “It is interesting times, but I think I have said that every year for the past three years. ”
Discussing the UK economy in general Prof Francis added: “We used to do forecasts looking five years ahead. Over the past few years there have been so many structural changes and so many uncertainties that it is nonsensical to look five years ahead with any degree of certainty. So we only look two years ahead now. The levels of risk and the number of different types of risk around at the moment are quite unprecedented.
“The historical economic growth average is 2%, last year it was 1. 2%, this year we are predicting 1. 3%, so lower than average but it is still growth,” said Prof Francis. On the currency market he added: “We still don’t have long term certainty about our relationship with the EU so I would expect exchange rates to be volatile for this coming year. ”
Turning to look at the construction industry in particular, February saw growth and housing activity rise after falling for nine consecutive months. House prices grew in all regions between 1. 2% (south-east) and 3. 9% (Yorkshire). The prediction for 2020 was mixed depending on the sector, from a 4. 2% fall (commercial construction) to 5. 1% growth (industrial). Overall, the picture for 2020 was flat, leading to 1. 2% growth for 2021.
For Prof Francis the longer term view was more positive with around £500bn of activity in the construction sector. However, a key factor would be who does the work, with 50% of contractors stating they had difficulty sourcing skilled workers. It has been predicted that the UK will lose around 500,000 construction workers in the next 10 years. Improvements in productivity is key to addressing this, including adopting modern methods of construction (MMC) and off-site construction.
“We need to look at the various opportunities that exist for the timber trades,” said David Hopkins, MD of the Timber Trade Federation (TTF). “Three hundred thousand homes per year, growing use of MMC and the drive to net zero carbon by 2050. But we have a major barrier with the use of combustible materials.
“We have been leading a response to the combustibles review along with our partners in the Confederation of Timber Industries (CTI). We are stressing that a difference should be made between cladding and structural wall construction. ”
Mr Hopkins went on to stress the importance that everyone should respond to the consultation, contact their local MP and encourage all of their contacts in the industry to do likewise.
On a positive note the TTF has compiled and produced a document entitled “How the timber industries can help solve the housing crisis”, which has been widely distributed to local authorities, housing associations and throughout the industry. The result was that many councils were not waiting for national government to give the steer but were now contacting the TTF to open a dialogue and explore the options.
Addressing the influence that reducing carbon could have on the industry Mr Hopkins added: “Every report states that building with wood scores the best in terms of low carbon, no matter how you add up the numbers, building with timber is the best for low carbon. ” “The timber industry is often considered a small trade but is actually worth £12. 3bn annually to the UK economy, “ said Nick Moore of Timbertrends. “However, 2019 figures were a bit of a horror story. Import volumes were down, import values were down and the average price of softwood imports were down by 7%. ” A total volume of 6. 4 million m3 for 2019 represented a 3. 1% drop on the previous year.
But looking at the previous decade the picture isn’t quite a bad. The lowest was 2011 with 4. 76 million m3 but the industry is still a way off the peak 6. 75 million m3 achieved in 2017.
Sweden remains the largest supplier with 41. 7% of the market but Latvia (17. 8%), Germany (7. 2%) and Ireland (6. 3%) all increased exports to the UK. Russia was the largest casualty with a 13. 3% fall in exports.
Evaluating housing starts in relation to softwood imports there is a direct correlation. But a predicted 6. 9% drop in housing starts points to lower softwood volumes. Similarly the reduced level of residential property transactions adds to this projection, with 15,000 fewer transactions in 2019.
“It has been a rollercoaster over the past three years,” added Mr Moore “2019, in general, has been the worst since the 2008 recession. The forecasts for 2020 are looking more positive but still present a very broad range of predictions. ”
Overall the best estimate for UK softwood imports is that the market will remain steady this year (at the time of the conference).
Widening the outlook to a more global perspective Olle Berg, marketing director for Sweden’s Setra, stated that despite his predictions for 2019 being largely accurate all bets were off when it came to 2020 as no-one knew the effect that the coronavirus was going to have, plus the issue of Brexit was unresolved, the bark beetle situation was worsening and the US election was a few months away.
So with those large caveats he predicted a slight decrease in European housing starts, a large drop in the Swedish market but the UK and German markets are to remain strong.
“The very mild winter in Sweden, Finland and Russia has caused issues with logistics and production,” added Mr Berg, “and the strikes in Finland have removed 1. 2 million m3 of timber from the market. ”
One notable point made by Mr Berg was that for the first time in many years, all markets were in play, in that every market that produces or harvests softwood was currently active. However, each faced its own challenge. “In North American the reduction in production in British Columbia is a structural change. It will not return as the raw material is not there. In China coronavirus will reduce the economy by 1%, which on their scale of things is a huge number in real terms. The Chinese furniture market is also down by 14%, even before the effects of the virus are taken into account. ”
The middle-east and African markets were all set to remain steady overall with some gaining more share than others, particularly Algeria following a year of political turbulence.
The conference rounded up with 10-minute talks covering three sectors: the UK, by Keith Ainslie, sales manager at James Jones & Sons; Latvia, by Kevin Hayes UK managing director of AKZ; and Finland by Patrick Towner, sales director for the Metsä Group.
“If I had one word to sum up last year it would be ‘oversupply’, you guys [Nordic producers] were producing too much and the price tanked,” said Mr Ainslie. He added that the price of C16 was unsustainably below the cost of production – a challenge for sawmills.
However, all UK sawmills were operating below capacity and larger investments were still being witnessed.
“2020 is going to be an open book as far as Finland, Sweden and the whole of Scandinavia is concerned,” said Patrick Towner of the Metsä Group. “Predominantly because of coronavirus but also because the strikes in Finland removed such a large amount of product from the market and left a gap that cannot be filled from elsewhere. ”
“Looking at the Latvian timber industry, it is a healthy, sustainable and dynamic forest with a very healthy and innovative forest industry,” said Kevin Hayes of AKZ. “It is very committed to the UK to which it exported 1. 2 billion m3 of timber in 2019. ”
Summing up, Mr Hopkins said: “Timber traders and builders merchants are facing an accumulation of economic, climate and environmental factors which will challenge the supply of softwoods and softwood-related products into the UK market in 2020. This may add to uncertainties in the construction sector for some time, with the market remaining in tight balance between available supply and demand. ”
