The UK softwood trade started off 2020 by carrying forward the legacy of the last quarter of 2019. With a patchy market and uncertainty over where prices would land, these prevailing market conditions continued to influence trading through January, keeping landed stocks on the high side and selling prices low. After a year of descending prices in 2019, when levels dropped at a speed and scale that many in the industry had never witnessed before, UK buyers lacked confidence in making forward commitments as they faced the prospect of further declines in selling levels.
While UK buyers were exercising caution in January, shippers across northern Europe were successfully addressing other markets and agreeing contracts with better prices for Q1 2020. Whitewood selling levels improved in both Holland and Belgium, while north Africa and Asian markets also accepted increases on redwood. For the larger shippers, the US market proved attractive for volume sales of CLS, and the prices achieved were at significantly higher levels than UK buyers were prepared to pay.
Among shipments to the US from Sweden was a record-sized cargo of 65,417m3, which sailed from Karlshamn to western ports in Maryland, North Carolina and Florida.
As the trade entered February, improving global demand gave exporting mills in Europe the confidence to ask UK buyers for better prices and to hold out for the levels they needed. But as market trends improved, a situation began to develop in the background that threatened to reduce log supplies and production volumes at many sawmills: namely the impact of warm, wet weather.
In the Baltic states, and particularly in Latvia, forest conditions started to really bite, forcing closures of forest access roads and preventing heavy harvesting machines from operating. As a result, many mills predicted reduced production and the possibility of late shipments. This heralds stock gaps in strength-graded softwood specifications, which could really bite in March and April.
A number of shippers reduced their volume allocation to the UK and were reluctant to give firm prices beyond late March or early April shipment. When the situation gathers pace, prices in the UK are expected to rise through March, and this in turn will assist stockists across the UK who were forced to sell their inventories in a falling market last year.
Adding to an already tightening softwood supply, industrial action in Finland reduced production in January and through February, with an estimated volume loss of between 600,000m3 and 900,000m3. The knock-on effect from this problem could be felt right through Q2.
The gap in available cargoes also affected allied industries, as shipping lines were forced to either cancel vessels scheduled to call at Finnish ports, or divert them to load other cargoes.
Like other countries in the region, Finland has experienced a milder winter with ‘soft’ forest conditions, and certain mills were curtailing production volumes even without the industrial action. Finland is the third largest supplier of softwood to the UK, achieving just below a 14% share of the imported market. The reduced production in both pine and spruce induced a number of buyers who couldn’t wait for a resolution to the strike to seek supply from Sweden. This caused, and continues to cause, an upward direction in price for the quality grades of unsorted, fifth and so on in both redwood and whitewood, which, combined with improved global demand, looks set to promise the Scandinavians a good first half year’s trading.
The UK normally imports between 6.5 and 6.7 million m3 of softwood per year, and the last full-year figures from the UNECE confirmed a volume for 2018 as 6,626,000m3.
This was revised downward from an estimate of 6,680,000m3 made in 2017. Estimated import volumes for 2019 were pitched at 6,760,000m3 and for 2020 at 6,720,000m3.
The UNECE estimates Finland’s 2019 softwood exports at 8,700,000m3 and predicts a decline in 2020 to 8,400,000m3.
The UK’s estimate of softwood imports from Finland this year is projected to be around 1,150,800m3, so if the strike was to continue until the end of March, it is possible that the UK would need around 210,000m3 extra to plug the gap. As this report was being written, however, the strike was expected to reach resolution for production to re-start on February 24, although it will take an extended period to catch up from the downtime.
Turning back to factors affecting the softwood market, the damage done to spruce trees by the bark beetle (Ips typographus) forced increased volumes of whitewood into the market last year, with German traders offering early Q1 parcels that added to the increased imports caused by the false Brexit deadline last March.
The extra German fibre was an added factor undermining UK prices. As the situation spread, the Swedes were faced with some rapid felling programmes to limit the spread of active beetle attack and more volume was forced into the supply chain.
Today, the bark beetle problem still exists across many parts of Europe, but it does not automatically follow that cheap damaged logs will be converted into sawn product. The mills can only use material that has not degraded too far and become badly discoloured.
Therefore, with mass areas of damaged forest and limited time to harvest logs before they are past saving, the availability of good, sound spruce logs is concern for the future.
At merchant level, UK buyers had visions of large volumes of over-production from cheap fibre at the mills, while at forester levels across Europe concerns related to just how much forest will be left standing that will be economically viable in years to come.
To enhance the durability of softwood and match the relevant treatment process to the intended end use, the industry, led by the TTF, is looking to establish a code of practice where UC2/3/4 are sold according to the product’s exposure in situ and fully comply with BS:8417.
Under the code of practice, UC2 would be deemed suitable for internal use, UC3 for external elevations and UC4 for where ground contact is envisaged, or the wood is likely to remain wet and unventilated for long periods such as decking substructures.
The problem that lies ahead for the trade is being able to treat whitewood to the higher levels. While merchants tend to like the appearance of spruce, it is extremely difficult to achieve penetration in the fibres and gain chemical retention, while UC3 and UC4 is more easily achievable with kiln-dried pine.
Another aspect of selling different treatment classes for different uses will be the need to allocate physical stocking areas, which could prove problematic for merchants that have limited space in their yards.
There can be little doubt that 2020 will prove an interesting year for the softwood trade and for wood products in general.
Already, a new UK government initiative is set to further restrict the use of combustible materials in buildings with a focus on outside walls, an area where modular timber construction and the use of cross-laminated timber (CLT) has been growing.
A consultation ending on April 13 could result in a restriction on the use of CLT and other engineered wood products in buildings higher than 11m, or four storeys, a reduction from the current consideration aimed at 18m.
The performance of engineered wood products will need to be proven and well-documented in relation to fire, if they are to continue their development as a major construction element in the UK. The industry must either unite behind efforts to promote a policy framework that celebrates the benefits of engineered wood and modular construction, or through inaction face legislation that gives the upper hand to materials perceived to be more fireresilient such as steel and concrete.
