It will be an interesting meeting at the TTF Shippers Breakfast Meeting on March 9 in London when representatives from the large volume softwood supplier nations gather to give market updates to traders.
With softwood oversupply still very much an issue and the value of the pound dipping under €1.30 in early February, importers will be looking to discern what strategies the major exporting mills are considering. The Baltic sawmilling sector will be represented at the meeting.
By then, the full year fi gures for the Latvian forest industry should be available, but we can already discern two key highlights.
Firstly, the Latvian Forest Industry Federation is confi dent that the value of the country’s wood product exports has hit a new record in 2015.
But secondly, that record has not been achieved through sawn and planed trade, but largely by added-value products such as wood pellets.
"The fi rst 11 months of 2015 indicate we will set a new export record in 2015," said Latvia Forest Industry Federation executive director Kristaps Klauss.
This is predicted to amount to more than €2bn, up €50-60m more than 2014. The overall fi gure by the end of November was €1.88bn.
Offi cial Latvian government statistics show that Latvian timber exports to the UK have grown in 2015.
The fi gures show that sawn softwood timber exports to the UK increased 5.4% to 750,000m3 (2014: 711,800m3) in the 11-month period from Jan-Nov 2015.
This was worth €166.8m or 31.9% of Latvia’s sawn timber exports during the period.
TTF statistics show over the same period that Latvia had a 16% share of UK softwood imports in Jan-Nov, 2015, which represents – like Sweden and Finland – a 1% growth in its market share. But a fall in average UK softwood prices of around 9%, against a volume fall of 2.6% tells its own story for the period.
Non-coniferous sawn timber exports to the UK were largely unchanged at 71,600m3, worth €11.2m, while for plywood Germany remained the single largest export market, accounting for 46,400m3 worth €32.1m). Plywood export volumes to the UK increased strongly by 50.2% to 33,300m3 (2014: 22,200m3), valued at €21.8m.
The export fi gure to the UK for all wood products was €352.4m (2014: €305.7m), some 18.7% of the total value of Latvia’s forest industry product exports. Germany was second on €199.3m (10.6%).
"The reason why we have succeeded in a new export record is not because of good prices or good markets," added Mr Klauss." "It’s due to an increase in the level of value-added products. We are exporting more further processed products than before.
"Beforehand it was green sawn treated wood, now there is more planed product. The other reason is wood pellets. We are sending more pellets and less chips, so we are changing our export mix of products."
Pellet export volumes expanded 27.2% to 1.45 million tonnes. The value of those exports grew by 26.3% to €190m.
The other signifi cant increase came in the sector "other articles of wood" which was reportedly up 35.7% to €189.1m, though this sector is diffi cult to defi ne and the Latvian Forest Industry Federation said it could be open to revision later.
Some of the Baltic sawmillers had predicted a weaker 2015 after a good 2014 and there is at the moment much uncertainty about prospects in the coming months.
"I believe the problems in sawn material markets at the moment is we are overproducing – in Sweden, Latvia, Germany and Austria," added Mr Klauss.
"Producers are producing more that what the market needs. Everyone should cut back production."
"Prices in the UK for construction grade material have not refl ected the downward trend of the pound largely due to high stock levels in the UK and overcapacity in the northern European sawmilling industry as a whole," said another market contact. "This has adversely reflected the returns of Latvian sawmillers."
On the currency front, the volatility is having an impact, depending on which side of the table you sit.
Several UK traders at a recent panels sector event said they had never know the market to be so volatile.
The fall in value of the pound to €1.30 and the dramatic drop in the Russian rouble’s value over the past eight months has created some uncertainty.
"So it looks like prices have to strengthen," added one Baltic sawmiller.
"It’s in everyone’s interest to increase the price of timber because of the currency situation.
"The UK market has been a very attractive market for European sawmillers but prices have to be adjusted to the currency."
The rouble’s devaluation has certainly had an effect on the cost of logistics for sawmillers sourcing logs from Russia.
Before the Ukraine crisis, Latvia used to send sizeable volumes of products, including foodstuffs to Russia which aided cheap logistics.
With the rouble’s fall, this trade flow has slowed, leading to a doubling in logistics prices.
"The price of logistics is still an issue," said a Latvian sawmill contact.
ESTONIAN SAWMILL INVESTMENT In terms of Baltic sawmill sector investment, Estonia appears to be accelerating projects to grow capacity.
"In Estonia there is a lot of investment," said one contact.
"The market has been good there and mills are having a lot of raw material offered to them and the forest is also expanding in size."
AS Toftal, is set to build a new €32m sawmill in Võru County, in what has been described as the biggest investment in the Baltics wood industry this century.
The company’s current mill in Somerpalu in south Estonia is the second largest sawmill in the country with a production capacity of around 200,000m3.
There is also reportedly activity on the old Stora Enso sawmill site in Paikuse.
A group of investors has expressed a desire to build a sawmill there, with capacity estimates ranging from 250,000-500,000m3. Stora Enso closed the site back in 2008. "But is there really enough logs there in Estonia?" said another sawmiller.
"These investments will change dynamics a bit, much like it did in Latvia several years ago."
The contact said the domestic market in Latvia and Estonia was currently very important and Japan was also a good market. He cited some concern about exposure to the UK market with the currency trend, as well as the ramifications of the devaluation of China’s currency.
The potential of better returns from further processed products was an area being looked at by the contact.
On the raw material front, Latvia is importing 20% of its logs from neighbouring countries, such as Lithuania, Russia, Belarus, Estonia and Norway.
"The price of logs has been relatively stable for the last few months," said a Latvian sawmiller.
"But the correlation between the raw material price the mills have to pay and the sales price for sawn/planed product could be better."
According to Wood Resource Quarterly, total log trade in the Baltic Sea fell by 10% in 2015, following a record high in 2014. But most of the decline was in softwood pulp logs, while trade of sawlogs actually increased to reach its highest level since 2007.
