This year’s TTF UK Softwood Conference in London came at a key time, with political uncertainty over the direction of Brexit still very much in the balance.
So predictions at the event, one of the most useful bellwethers of softwood market dynamics, came laced with a fair amount of caution, with allowances made for different outcomes in the political process.
The fact that around 200 industry representatives attended on March 6 was a demonstration of the eagerness for information in the current stake of flux.
Speakers represented the UK, Ireland and European sawmilling sectors, while the Construction Products Association presented a useful picture of the UK economy, construction and RMI markets.
UK softwood imports
Nick Moore, of Timber Trends and the TTF’s primary statistician, told delegates that the TTF’s UK softwood import volume and softwood consumption forecasts were based on the UK striking a Brexit deal with the EU.
Mr Moore said the TTF was forecasting a 1.7% rise in UK softwood imports this year to 6,675 million m3, with consumption moving up 2.7% to 10.27 million m3.
“2019 will in fact return to the best year the industry has had since the dramatic times of the recession,” said Mr Moore.
“This is surprising given the current [Brexit] situation.”
However, Mr Moore said a no-deal Brexit or a delay to the Brexit process would negatively impact the forecasts and could lead to supply chain delays, higher costs, product shortages, job losses and price rises.
Mr Moore said the TTF’s forecasts mirrored other industry forecasts, citing a predicted 2.4% growth in housebuilding starts in 2019 and the UK Treasury’s GDP forecast for 1.4% growth.
“There is clear consistency between the various forecast numbers for 2019,” added Mr Moore.
The conference also heard that UK softwood production is forecast to grow to 3.8 million m3 in 2019, a 4.1% rise.
This follows a 2018 which saw the value of UK softwood imports rise to £1.4bn, despite a 2.8% reduction in imports to 6.564 million m3 and a 2% decrease in UK softwood production to 3.65 million m3 (2017: 3.73 million m3).
There was also a 2% drop in UK softwood consumption to 10 million m3 (2017: 10.29 million m3), although it was still the second best figure in the last 10 years.
Latvia, Germany and Russia were the supplier countries increasing their UK market share, with Sweden, Finland and Ireland showing reverses.
“2018 was not quite as bad a year as the first few months of it could have dictated,” said Mr Moore. “The overall mood of 2018 suggests there was growth for some of the leading influencers of our marketplace but that growth was slowing.”
Speaker Olle Berg, market director of Setra, said the global wood consumption outlook was “good” with the market “well-balanced”. He did not envisage any major markets crises, even considering Brexit and other global factors.
Production, he added, was running high in all production countries but with no dramatic increases in 2018-19.
He reported global softwood consumption in 2018 at an all-time high.
Regarding Brexit, he confidently and optimistically predicted that things were not as gloomy as 2007-08 during the financial crisis. “Are we looking at the new 2007?” said Mr Berg. “I do not think so because the situation was different in 2007.”
And Mr Berg also said UK new housing start figures were looking “quite nice” with good activity and underlying demand, with starts looking to break through the 200,000 milestone in 2019.
“We look at the UK as a sound market in the coming years.”
Global Picture
Mr Berg reported a forecasted 5% increase in US housing starts in 2019 to 1.4 million, with European softwood exports to the US expected to increase by 400,000m3 to 1.9 million m3 in 2019, while Canadian softwood shipments to the US have decreased. “The US will continue to be attractive to the European industry,” he said.
Major European softwood volumes were shipped to the Middle East and North Africa (MENA) region in Q1, 2019, with Algeria back to normal shipments. “I think the volumes to the region will be somewhat better in 2019, but not a dramatic increase.”
Mr Berg reported that Chinese softwood imports were severely down in 2018 due to an oversupply, the effect of environmental regulations and slowing growth. Imports from Sweden reduced by 29%, while those from Finland and Canada dipped by 40% and 13%. But Q1, 2019 sales and deliveries were back to normal levels.
Overall, European softwood production is expected to be flat in 2019 at a forecasted 126.9 million m3, while global production is put at 241 million m3 this year (2018: 234,744m3).
Mr Berg also reported a near tenfold growth in cross-laminated timber production since 2008. “I think this material is really becoming a winner.”
Ireland and UK Sawmilling Sectors
Mike Glennon, joint managing director of Irish and UK sawmiller Glennon Brothers, outlined the significance of the Irish forest product sector and the importance of trade between the UK and Ireland, and the potential impacts of Brexit.
“The key market for Irish timber exports has always been the UK,” he said. “Over half of the Irish sawmills’ output is exported, with 95% going to the UK. Ninety per cent of panel products produced in Ireland are exported, with two-thirds going to the UK.
Exports, from the forest products sector, in the Republic of Ireland in 2017, totalled €423m.” He also highlighted the importance of Ireland’s trading relationship with the UK, with €60bn traded between the UK and Ireland annually, and over 40% of indigenous Irish company’s exports being to the UK.
He went on to outline the risks to this trade caused by Brexit, including the impact a hard border would have on the island of Ireland and on the 30,000 people who cross the border each day.
But Mr Glennon expressed confidence in a significant growth in log supply from the Irish private forestry sector and in the processing industry’s commitment to the UK market.
“Whilst we face uncertainty over Brexit, the Irish sawmilling sector has always been committed to the UK and that will not change,” said Mr Glennon.
Keith Ainslie, sales manager at Scottish sawmiller James Jones & Sons, said UK roundwood supply was constant at around 11 million m3, with around 55% from the private forestry sector.
Biomass consumption, he said, was creating a challenge for processors with the former growing six-fold since 2007 and providing competition for wood fibre.
The UK sawlog price index has risen 50% in the last two years and standing sales prices have grown 98% in the last five years.
“This [higher log prices] is the new norm in the UK sawmilling industry,” said Mr Ainslie. “We are having to compete for fibre in an increasingly harsh competitive environment.”
One benefit from high biomass consumption was that it is leading to the harvesting of more poorer quality plantations, with some sawlogs in these areas now able to be released to sawmills.
Mr Ainslie said most UK sawmills had recorded a “solid” year in 2018, despite the poor weather-affected start, though the fencing sector had been lacklustre.
He also repeated a warning he made last year.
“As an industry we cannot continue to put wood into low priced products. That is a longterm trend that I don’t think our customers have got their heads around. They assume we will continue to supply unseasoned, low quality wood.”
Mr Ainslie said the outlook was optimistic, with mills not having slowed down during winter and with good stocks, but companies also remained cautious due to the political environment. Unfavourable currency movements have contributed to more imported stocks being on the ground in the UK .
CPA Outlook
Construction Products Association (CPA) economics director Noble Francis reported that CPA members, as well as housbuilders and contractors, had been stockpiling since last summer in advance of Brexit.
He reported that consumers were continuing to spend despite Brexit uncertainty and believes the Bank of England will raise interest rates if a Brexit deal is agreed.
He predicted close to zero UK construction growth in 2019, before a rebound in 2020 (+1.9%), with the commercial sector seeing an 8% reverse this year and the industrial sector rising 2.5%.
Private housing is forecast to grow 2% in 2019 and 1% in 2020, with public housing growing 1% this year and being flat in 2020. Total RMI output is expected to be close to zero in 2019 and +1.2% in 2020.
Regional housing start fluctuations were recorded in 2018 – inner London showed a 47% reverse compared to 2017, with outer London showing a 15% dip. The north-west region was up (+9%) and Yorkshire also rising (+6%), with Help to Buy sustaining demand.
Mr Francis predicted that a no deal Brexit scenario would have a similar impact on sterling as in the aftermath of the EU Referendum (15-20% drop in value), leading to a rise in import cost inflation and warehouse and haulage costs, supply chain disruption and a sharp fall in GDP in Q2 and Q3.
The CPA is predicting double-digit growth in warehousing and ports construction irrespective of Brexit.
Mr Francis presented a worrying overall prediction in the event of a Brexit no deal scenario – total construction output to fall by 4.2% in 2019 and by 2% in 2020, with a potential follow-on impact of a consumer and business confidence downward spiral exacerbating the impact on private housing construction – the latter, he said, seeing reverses of 10% and 7% in 2019 and 2020 respectively.
“No-one can deny that Brexit has already begun to reduce confidence in the marketplace, and that any disruption to supply chains will have a serious impact on our industry’s ability to supply the materials to Keep Britain Building,” added David Hopkins, the TTF’s managing director.
“The smooth flow of imported timber into the UK is therefore essential for the construction industry to function normally,” he said.
