As Europe fell into the grip of winter, the UK softwood trade was hampered by shipping delays, yard closures and suspended building activity. Combined with treacherous UK road conditions preventing the movement of goods, many merchants shut up shop in the first week of March and now face extra costs to catch up on delayed deliveries. Meanwhile, in the forests of northern Europe, freezing conditions paved the way for logging extraction and supplies to the sawmills greatly improved.
After a prolonged wet autumn in most parts of northern Europe last year, saw millers are now relieved that the forest roads are firm enough for harvesting machinery to access the tree stands to get extraction under way. In Latvia, with temperatures dipping to -25C in some areas, mills have the problem of equipment such as forklift hydraulics and chemical treatment tanks freezing up, where buildings are unheated. Also, when the wood inside the packs is frozen, it becomes unsuitable for treatment cycles, as the chemical cannot penetrate the fibres adequately.
Now that log supplies have resumed a steady flow, Latvian mills are receiving more volumes of whitewood logs after a period where redwood became dominant. The normal mix of around 45% spruce and 55% pine has been reinstated for the time being and is helping to provide whitewood for those specifications not requiring treatment.
Improved log supplies will be of some comfort to importers who will be relieved that new softwood supplies are in the pipeline, but with an ever rising global demand there will certainly not be any over-production, and there is little appetite in the industry to force any increased volume into the UK. SUMMARY Log harvesting in Latvia is generally on a downward trend in both the private and State forest sectors, having dropped by approximately 2 million m3 since 2010 down to a figure somewhere near 10 million m3 in the round. Log prices have risen by 12% in the 12-month period to the end of January this year, driving up prices of sawn timber in addition to increases in shipping charges and currency fluctuations. To compensate for home-produced shortfalls, most mills are buying in a percentage of sawn raw material from Belarus or Russia and neighbouring states.
In Estonia there is some incremental growth, albeit on a smaller scale than Latvia, and its main customer for log exports is Sweden followed by China. Lithuania is becoming more dependent on importing fibre for the sawmilling industry, but conversely, it also exports signifi cant volumes of roundwood to China, which some would argue deprives the sawmilling sector of access to raw material.
Some Latvian producers are converting from FSC to PEFC because of what they perceive to be an overly rigorous change to the licence rules of the former, which will in turn mean a reduced supply of FSC softwood. In the case of receivers with dual certification, those importers will have to extend their storage areas just to keep the packs of wood from the two schemes in separate zones. Some merchant customers have chosen to completely convert to PEFC while others insist on FSC only. The overriding need for accreditation is to exercise due diligence to ensure that all purchases are EUTR compliant as required by the Government Office for Product Safety and Standards
Due to importers anticipating shortages and buying forward for January 2018 arrivals, landed stocks of softwood started the year at fairly high levels. Slow demand and poor weather conditions have affected trading by keeping inventories higher than expected and consequently price rises have been held back and are only expected to inch up gradually through March. This trend is likely to hold until supply and demand are in balance, however, there are already gaps appearing in carcassing specifications, and some importers are starting to push shippers to ensure contracts for March-April are shipped on time.
Swedish softwood production fell last year by around 4% in the carcassing producing regions of the south, while the regions further north increased production between 4-5%. This gives an indication that C24 will be in shorter supply, while redwood grades may exceed demand. However, with a strong home market and some stabilising of the MENA regions, the extra volume will be taken up if the mills trim their output carefully to match demand. Stocks of Finnish softwood are low at the mills in spite of higher log availability, so this could provide a counterbalance if Swedish redwood production exceeds demand. Finnish sales of redwood and whitewood to China are increasing, with whitewood exports dominating. Spruce and pine sales combined showed an increase of around 75% in 2017, positioning China as Finland’s largest export market at a figure of just under 1.8 million m3, roughly twice the exports to the UK.
Turning to the joinery quality sector, UK importers are reporting weakened demand and volumes in the market appear to be falling. Merchants are stocking smaller volumes of planed and profiled solid wood as MDF mouldings, composite decking and plastic-based products such as fascia, bargeboard and imitation wood grain cladding eat into the traditional material’s market share. One emerging common thread, according to contacts around the UK, is a reduction in the number of independent general joinery shops making one-off staircases, windows and doors from softwood.
The situation has become such that demand and price levels for structural C24 softwood are now higher in some cases than a good 5th redwood, or even unsorted.
Behind the global price structure of softwood lies a growing demand in the US driven by recovering house starts. With a current production in its own right of around 56 million m3, the US has been consuming over 80 million m3 with limited softwood exports of approximately 2.7 million m3. This means that the US must import some 22 million m3.
Canada is currently the largest supplier, and in spite of the US applying countervailing and anti-dumping duties against the sawmills, the Canadians have managed to pass these back to US importers, and on a rising market, also make good returns. The US market is expected to grow beyond current figures and more forest area in America is to be released by the government. This has induced a number of the big Canadian forest products groups to open substantial investments within the US to avoid future tariffs.
Tolko Industries Inc based in British Columbia has announced a partnership with Hunt Forest Products LLC to start building a SYP sawmill in Louisiana this April, to produce 200 million board feet (472,000m3).
The project is expected to cost US$115m and will be completed by the year-end. Likewise, Canfor Corp is investing US$120m in a new sawmill to be based in Washington, Georgia, capable of producing 275 million board feet per year (649,000 m3). The mill is close to the company’s existing engineered wood unit and is expected to be online in the third quarter of next year.
US companies are also increasing investments in the area and Georgia Pacific is investing in a mill sited at its current facility in Warren County, Georgia. Starting this summer the mill should begin to produce the anticipated volume of 350 million board feet (830,000m3). A further production of 240 million board feet (566,000m) is also being planned by REX Lumber Co in Alabama, with work due to start on March 15 and this mill will add to the company’s current operations of three mills already producing 575 million board feet (1.36 million m3).
As Canada appears to have given up hope of renegotiating NAFTA with the US, Canadian producers are hedging their bets for the future and have joined the new Pacific Alliance to strengthen their ties in Asian markets. Last year, Chinese softwood imports from all supplying countries were said to have grown by 21% up to Q3 against the same nine months in 2016, and all analysts point to a larger expansion of softwood demand in the near future.
On March 2, the North American price index hit a record level at 25% above last year’s figure, west coast SPF increased by nearly 47% and eastern SPF moved up 41%. The price of US structural pine also increased by almost 18% compared to the same period last year, creating an upward momentum for shippers in Europe to take advantage of and think about raising their export allocation in favour of the US market.
While all markets can fluctuate, everyone able to produce US specifications in quantity seems confident that the market trend is consistent and strong and Swedish producers are already shipping substantial volumes westward. On top of the inducement of North American price improvements, many Nordic exporters are taking enquiries from China, especially for whitewood, and the apparent potential for almost unlimited growth is giving them confidence to enter this new market.
Back in the UK, very little of these global stimuli have yet impacted supply and availability, but there can be little doubt that as the trade enters the second quarter the market will find itself supply-driven, and buyers will find that prices are of secondary concern against the need to secure regular and reliable shipments.
