Post-election and with Brexit set to get done, even if we don’t know in what form yet, talk in the hardwood trade is more positive, albeit only marginally in the case of some businesses.
Whether staunch remainers or ardent Brexiteers, importers, agents and distributors express relief that UK politics are on a more predictable path.
“Pre-election uncertainty and not knowing if Brexit would happen or not was doing most damage,” said an importerdistributor. “Everyone was taking a wait and see approach.”
The consensus was that the hardwood trade had become slower as 2019 progressed, with the last six months described by one company as “the quietist period for a few years”.
“Customers were buying increasingly little and often and nobody wanted to hold any more stock than they had to,” they said.
The forecast from the Construction Products Association is still that UK building sector output will contract 0.3% in 2020, before recovering to 1.2% in 2021. However, hardwood suppliers report some construction customers bringing projects postponed preelection back on stream and generally more upbeat feedback from the industry.
“A building surveyor told me he’d had nine jobs commissioned just on the back of the election result,” said another importerdistributor.
Reports of a generally improved outlook in construction are borne out by latest news from the IHS Markit/CIPS UK Construction Total Activity Index. It had lagged below the critical 50 no change value for eight months. However, IHS Markit reported a post-election confidence upswing, with “construction companies indicating optimism about the year ahead had rebounded to a nine-month high”.
But while it welcomed the more up-tempo construction mood music, the hardwood sector is under no illusions that it will translate into a marked upturn in orders, or, importantly, greater consistency in business, overnight.
“Hardwood is primarily a second fix material, so, even in the unlikely event we see significant improvement in building activity, there will be a lag before we benefit,” said a distributor. “Also due to recent political and economic uncertainty, we’ve seen general joinery in particular opt increasingly for a just-in-time approach and it will take time before they start operating differently. In fact, if it works for them, some may not.”
The hardwood sector is also predicting continued tough times in the key shopfitting market, with consumer caution and online retail growth both together putting the brakes on spending.
As a result of all the above, an importer said business remained stop-start.
“It isn’t terrible by any means. In fact overall volumes last year and this have been decent enough. But it’s the most volatile we can remember. It’s so difficult to read going forwards in the UK and internationally,” they said. “As a result we’re still keeping everything tight. We’ve repositioned the business stock and value wise and won’t be doing any speculative buying, just working month-to-month.
“We’re all hoping for and expecting improvement and greater consistency on the back of more political stability as there’s undoubtedly pent up demand in the market. But whether it will be in three months, six, or more, we just can’t say at this point.”
Hardwood importers also report holding a lot of stock, particularly at ports, due to a combination of customers paring back their own inventory and an element of volume building ahead of last year’s predicted Brexit dates as a hedge against anticipated port delays.
“Consequently, we’re seeing some silly pricing, as companies try to shift timber to generate cash, so margins are under pressure,” said an agent.
Currency fluctuation is proving an added headache, said contacts.
“It’s not so much the pound’s strength that’s important, it’s currency stability,” said an importer. “It’s another factor making business short term and we can’t see much change over the Brexit transition period, particularly with added international uncertainties, from continuing US/China trade tensions, to the impacts of the coronavirus.”
Looking at sources of supply and species performance, US sawmillers are still reported to be hurting from the impact of Chinese tariffs. “There’s talk of a deal now, but mills have been hit hard,” said an importer. “They’ve reduced shifts and shed jobs. One company said they’d normally be doing 1 million board feet a month. They’re now at 300,000. Another had six out of 22 kilns empty, which was exceptional.”
Another importer reported tightening in US green lumber.
“China buys number one and two common green and if US mills can’t sell that, they’re not cutting the log, so prime isn’t available for Europe,” they said. “As a result we may increasingly see shortages.”
Despite this, however, currently North American prices are still reported largely stable, although with tulipwood weakening 3-4% in recent months.
White oak is described as the species least affected by Chinese tariffs, with main markets being in the US itself, the UK and elsewhere in Europe.
“In fact, with weather curtailing the production season, we’re starting to see gaps opening up in selection and could see prices firming,” said an importer.
US ash and tulipwood demand is said to be holding up relatively well and while general FAS walnut is “meandering around”, superior is selling strongly, reflected in firm prices.
The species that has been particularly impacted by US-China trade tensions is red oak, with consequent cut backs in output reported to be leading to shortages in Europe.
European oak suppliers meanwhile are said to be keen to sell, but this also isn’t reflected in pricing.
“We’re getting a lot of contact from suppliers, but so far they’ve maintained prices,” said an importer. “We’re not sure where they’re getting that strength of mind from.”
European beech prices have remained firm, with demand for main sizes outstripping demand. Beech, along with ash, was reported at the International Hardwood Conference to be particularly affected by climate changeattributed drought stress, especially in central Europe, resulting in discolouration and weakening of the wood. Combined with spruce bark beetle infestation, such is the severity of German forestry’s problems, that the government is allocating it €1bn to cope with immediate issues and develop longerterm “climate-smart management strategies”.
Hardwood suppliers report an increase in interest in UK timber species, driven by specifiers’ desire to source local to shrink their carbon footprint.
“But when they find English oak is 40-50% more expensive than European most stick with the latter or US white,” said an importer-distributor.
In the tropical market, demand for sapele, iroko, sipo, and for meranti is described as “reasonable to good”. Prices have also been stable.
“If we were going to see weakening in African it would be in the dry season from now to May/June. That we’re not indicates suppliers are getting sufficient demand from elsewhere to maintain price,” said an importer. “We’re also hearing that Indonesian, Vietnamese and Malaysian suppliers are profiting from the tariff-induced downturn in Chinese US imports, again underpinning prices,” they added.
With UK importers having “shaved” tropical purchasing due to market uncertainty, several also predicted there could be some shortages in African ahead.
“If demand holds up, we could see gaps appearing, particularly in sapele, as, with six month-plus lead times, it takes time to turn the supply tap on again,” said one company.
In terms of competition for hardwoods, wood plastic composites are reported to be making more headway than ever.
Modified products also continue to carve inroads, with the UK annual Accoya market now estimated at 15,000m3.
“We also have new thermally modified radiata pine Abodo,” said an importer. “So competition is hotting up all the time.”
Engineered European oak and eucalyptus grandis are also reported to be “nibbling away at tropical share”.
There’s confidence the UK will continue to implement the EU Timber Regulation and EU Forest Law Enforcement, Governance and Trade regulations post Brexit, albeit rebranded as UKTR and UK FLEGT.
Mid last year, the UK government agreed a trade and development deal with Indonesia, which included continued support for the latter’s FLEGT programme.
The UK Competent Authority, the Office for Product Safety and Standards, also told the EU FLEGT Independent Market Monitor that, in the case of Ghana, widely expected to be the next country to start FLEGT licensing, the UK has also established “parallel arrangements so we can continue FLEGT Voluntary Partnership Agreement discussions”.
Companies questioned also expressed little concern about having to subject all imports from the EU to UKTR due diligence if there’s a no-deal Brexit. Looking forward, however, there’s still hardwood trade anxiety about the impact on business generally of the UK leaving the EU with no deal.
“We’re reasonably positive about the medium term and optimistic for the longer term,” said an importer. “But, until a Brexit deal is finalised, it remains a ticking bomb and it would be brave person to forecast where we’ll be in 12 months.”
