Supply rather than demand continues to be the chief preoccupation of the UK hardwood sector.
The market is not overly upbeat. One importer commented that it had “come off the boil” in 2018.
“Niche joinery companies doing high end jobs, like the £50,000 piece of hardwood furniture for the bank foyer, also don’t seem to be in the system like last year,” said an agent/importer. “Volumes are the same, but there’s more chasing market share.”
An importer/distributor was also concerned about lack of market volume growth, especially coupled with Continental hardwood suppliers targeting the UK increasingly assertively. He also highlighted the “dire mood on the high street” and consequent slack demand from shop fitting.
However, like most traders, he balanced the underwhelming market comments with more positive observations, in his case that the hotel sector has become increasingly active.
“We’re seeing more business coming from newbuild and refurbishment,” he said. Similarly, while the bad weather at the start of the year, which contributed to a 2.7% fall in construction output according to the Office of National Statistics, was reported to have impacted sales, the general view was that demand recovered with the spring.
“Stock backlogs had to work through, but from April/May momentum began to build,” said an importer/distributor. He added that the mood at his last London Hardwood Club meeting was “buoyant” and feedback from key markets, such as the wider joinery sector and door manufacturing, was “pretty good”.
The consensus was also that the market is proving relatively resilient considering wider political and economic uncertainties.
“Trade might be a bit flat, but if the day after the Brexit vote you’d offered me current business levels two years on, I’d have bitten your hand off,” said an importer. “Customers may be more cautious, ordering little and often, although that plays to traditional stock holding importers like us, but generally it feels like people are ignoring bigger issues they can’t influence for the time being and knuckling down to business.”
“Trade is unexciting, but consistent,” said an agent, “In the current climate that probably translates as good.”
So it seems generally agreed that the hardwood sector’s greater challenge is sourcing the timber in an increasingly competitive global market, and absorbing or passing on price rises resulting from tighter supply.
Asian – and notably Chinese – buyers competing for every type of hardwood are seen as the key factor behind the current supply situation. But export restrictions, logistical problems, the EU Timber Regulation (EUTR) and plant health issues are all cited as playing a part, while the weakness of the pound against both dollar and euro has added to supply-induced price pressure.
While still a UK best seller, white oak prices have been firming significantly; up 5-10% in the last nine months said one importer. This is attributed to buoyant demand from the recovering US housing sector, continuing growth in global consumption, and shortages in European oak.
China has again been a key US export market and until recently has been buying both lumber and logs in all species. Now, however, the Chinese authorities have imposed phytosanitary restrictions on imports of US logs and a range of other products, at least in part, traders feel, in response to US tariffs on Chinese steel and aluminium.
An importer feared this might lead to Chinese buyers increasing their oak lumber purchases instead, both from the US and Europe. Another was concerned that suddenly increased log availability for US mills might destabilise the market. “We’ve got three months supply in stock, three months on order, so we don’t want an overnight price collapse,” he said.
Another factor continuing to underpin white oak demand and price is rising consumption in the buoyant US whiskey barrel market.
Excess volumes of “bog standard FAS” white oak in UK inventories have also inhibited importers from passing on price rises. One was consequently attempting to differentiate their offer, “focusing on super prime long lengths and niche products”.
High demand and supply uncertainty in white oak is also leading to increased price variation.
“It’s affecting various US items – you can get a 10% spread between guys 10 miles apart,” said an importer. “So the market’s difficult to read.”
Walnut prices are especially unpredictable, with “every supplier having different ideas on grade”. Demand for the species, however, maintained one importer was still “hot”, although others said it had plateaued more recently.
US ash prices are also firm due to worldwide demand and gradually declining availability due to emerald ash borer beetle infestation.
“Although availability is better than we predicted at this point,” commented a trader. “Like others, we felt we should invest in developing European ash sales due to the borer. But we’ve been wrong-footed as compliance with the kilning regime required for US ash has been made easier, supply is still there, and it remains preferred by many to shorter European.”
UK demand for US tulipwood/poplar is reported to be good to strong, notably as a paint grade, and prices are firm as a result. Meanwhile, cherry and maple supply and price are stable, but demand “unremarkable”.
A general comment is that FSC-certified US hardwood is scarcer and more expensive.
“More suppliers aren’t renewing certification as the return on investment isn’t there,” said an importer. “FSC controlled wood certification due diligence has also become more onerous and one mill called us to ask if it was important to renew. We said no, as UK customers regard US hardwood as inherently sustainable, certified or not.”
The hot topic in the European hardwood market continues to be overheating European oak. As with American white oak, global demand has been growing rapidly, with China again the main destination. According to Silvia Melegari, secretarygeneral of the European Organisation of Sawmill Industries speaking at the European Oak Conference in London in March, Europe’s sawn oak exports to China in the last seven years were up 34%, logs 244%.
Croatia’s transit and export restrictions on green lumber and logs, ostensibly to combat oak lace beetle, has exacerbated fraught market conditions and the ban on unprocessed timber exports by another key oak supplier, Ukraine, is adding market pressure. Now there is also added concern that lumber from Ukrainian mills may have derived from illegally felled trees, including oak. A report from NGO Earthsight alleges that rules allowing felling of diseased trees have been illicitly used to harvest healthy forest, with the subsequent timber finding its way, despite EUTR due diligence, into neighbouring EU countries, notably Poland and Romania.
“As a result, we’re interrogating all European oak imports more closely,” said an importer/distributor.
The overall consequence of the various European oak market pressures, said one supplier has been a price rise of 15-16% from January to July.
“Suppliers are also insisting on us buying a range of grades and thicknesses to get the ones we want,” said an importer.
The European beech market by comparison, said one importer is “very straightforward”.
“It’s in good, steady demand, notably or furniture manufacture and it is relatively cheap,” he said.
But African hardwood supply is also characterised as increasingly competitive and beset with supply issues.
After entering protective receivership last year, Rougier concluded the sale of its businesses SFID, Cambois and Sud Participation in Cameroon and RSM in the Central African Republic to Cameroon-based consortium Sodinaf on July 16. At the same time it said it would focus on developing its other more “geographically aligned” African operations, notably in Gabon. But, while now seemingly resolved, inevitably this process has impacted on hardwood supply to Europe.
“And that will continue, with those ex- Rougier businesses now in Cameroonian rather than French ownership and likely to take a different market view,” said an importer, who also questioned whether the new owners would renew the FSCcertification, which Rougier let lapse under receivership.
Another supply constraint has been ongoing chaos at Douala, the hub port for central and west African hardwood supply. The Cameroon government has set up a commission to investigate the “failed operations” at the facility. But importers don’t expect rapid improvement to port management, decrepit machinery and dredging operations soon and predict that the huge backlog of timber at the port will continue to build.
The result of these factors, combined with the administrative time and cost burden of EUTR compliance, is reported to be resulting in further concentration of the importing sector.
“We’re seeing companies on the periphery, importing small volumes now and again, coming to us instead,” said an importer.
There is also general upward pressure on African prices. Sapele and sipo/utile are both reported to be up €50-60/m3 FOB for quarter one shipment 2019 compared to six months ago. Another importer predicted a further 5-7% rise for sapele by the year-end. Framire and iroko prices are also firm, with the latter now in better supply, but the former increasingly hard to source.
“Overall, African suppliers are very bullish, it’s a sellers market and they’ve got full orders books,” said an importer. “Drying specialists in the UK and Holland in particular are finding it hard to get enough hardwood to put through their kilns.” Continuing wet weather and heavy buying elsewhere in the region, notably again China, is affecting Asian supplies and prices.
“Bangkirai is especially affected, with prices already up significantly recently and quoted 20-30% more for delivery end of 2018,” said an importer, adding that FSCcertified material was attracting a premium compared to FLEGT-licensed only..
There are similar pressures in peninsular Malaysia, with rising price and extended lead times for keruing and meranti. The strength of the Malaysian ringgit against the dollar is also said to be inflating prices further, and suspension of some suppliers’ certificates has hit PEFC supply.
Lesser-known tropical species, such as movingui, are still reported to be getting little market traction, but engineered products, notably in sapele and white oak are said to be making headway. Grandis (eucalyptus), modified timber, and wood composites are also gaining ground, but, said hardwood traders, are increasingly recognised as augmenting the market for hardwood, rather than as substitutes. “We see them all as part of our armoury as a modern timber and service provider,” said an importer.
Looking forward, importers say they see no reason why demand or supply should not continue on present trajectories, although the current state of Brexit talks mean there are “more unknowns than knowns about trade after March 29 next year”.
“We’re having a meeting later this year on hardwood trade via European distribution hubs post-Brexit,” said an importer.
“Meanwhile, it’s a case of carrying on.”
