Exchange rate movements and oversupply are creating uncertainty in the softwood sector, and for Finnish producers a subdued domestic market is providing no comfort. Although the euro’s slide against sterling benefits eurozone producers, this has been diluted by the bigger fall of the krona, which has sharpened Swedish producers’ competitive edge. Added to this, the quickly changing values are making buyers jittery and reluctant to make longer term purchasing commitments.

A year ago the sterling/euro exchange rate was £1/€1.20; in mid-March it was £1/€1.41, having moved 10% since January. Meanwhile the Swedish krona’s value versus sterling has fallen 20% in the past year.

"The fall in currency is alarming," one shipper told TTJ. "When you have a swing of 2-3% people will live with it, but when you get into double digits it has a huge effect." This, combined with oversupply, has led to a second quarter that is anything but normal, another contact said.

"The market is active but with short-term buying and customers are very precise about what they’re buying. As long as you have the specifications, you have a good chance of doing prompt business, but in terms of a contract balance, we’re now looking four to six weeks ahead," he said.

Finnish mills have cut back production – by nearly 10% in January and February compared with 2014 – and doubts are being expressed that this year’s output would match last year’s volume of 10.9 million m3. However, Swedish mills are said to be producing at around the same level as last year and this has coincided with demand being affected by a range of economic and geopolitical issues around the world.

European markets are stable, but with modest growth, and redwood sales to Egypt, which have been strong for the past few years, have also become a hostage to exchange rate changes, especially the strengthening US dollar.

"Egypt doesn’t have enough hard currency to make purchases. They have one million m3 of timber in the port of Alexandria but, as the dollar strengthened, shippers were offering new lots cheaper. Customers have decided to consume the stocks they have and see where the price settles," one contact said. The recent movement of the Russian rouble has also encouraged North Africa and the Middle East to buy more heavily.

The timber industry is not being kept busy at home either. Finland’s economy was later to falter than others and housebuilding activity is still weak.

There are more positive signs in China, where the furniture market "looks interesting", and in Japan, which is starting to buy again after building stocks to beat the sales tax hike introduced in April last year.

The US is also showing promise and its recovering housebuilding sector could divert Finland’s competitors away from other markets. "The Canadians are shifting more volume away from China and the Pacific Rim to the US, and if the Swedes and central Europeans start shipping whitewood to the US in larger quantities, that might leave a void in China, Japan and central Europe for other producers," one shipper said.

One of the most positive markets for the Finns is the UK which, although subject to the currency movements and supply issues affecting other customers, is considered fundamentally robust.

"Underlying demand in the UK is very strong," one contact told TTJ. "Construction is forecast to grow by 5.3% this year and by 4.2% next, and housing starts are expected to rise by 10%."

In fact, new figures from the NHBC reveal that in February the number of new homes registered in the UK increased by 25% on a year earlier.

However, while demand is good, supply is even stronger and so buyers are cautious because they don’t know at where price levels will end up.

"We have a strange situation where, overall, the UK market looks positive – it has 65 million people and it’s a big importer of timber – but on a practical level, day-to-day, it’s dog eat dog."

Some traders believe the general election will also slow the UK market and will be another reason for second quarter figures falling below par.

However, whichever party or coalition is leading the country after the election, there are expected to be potential benefits for the timber industry, albeit of varying degrees.

"The good news is that for all the main political parties housebuilding is at the top of their agenda so, whoever wins, it’s likely to be positive for business," said one contact. While some expect a busier spring and early summer to bring a better balance to supply and demand, others predict little market shift until the autumn.

"I can’t see anything changing," said one shipper. "Things will die down over the summer holiday period and it’s when we come back that will be crucial in terms of the back end of the year."

What is certain is that the current combination of conditions can’t go on forever and when it does alter it will benefit the timber industry.

"Whenever the change comes it will be very good for everyone but I can’t see it happening in the next month or so," said one shipper.

Another agreed, but painted a brighter long-term picture. "At present it’s a supplydriven market and a lot depends on general economic development. But there’s big latent demand for construction worldwide, so when there’s more positive economic news I think the situation could change very quickly."

Stora enso to build LVL line

Stora Enso is investing €43m in a new LVL production line for wooden building elements, as part of a move to rationalise its Building Solutions Finland and concentrate production on one site.

The line at the company’s Varkaus mill will produce posts and beams, flanges for I-beams, scaffolding planks, as well as largescale systems including three-pin frames up to a span of 40m, box beam roof cassettes and industrial I-beams for heavy concrete shuttering.

"LVL is a mature and well-known technique but Stora Enso’s innovation enables costefficient wooden building elements as a complement to CLT in non-visual applications. LVL will expand our product portfolio and strengthen our market position in building elements," said head of wood products Jari Suominen.

At the same time, the company is in negotiations with employees in Building Solutions Finland to discuss the possible loss of 50 workers and closure of the Pälkäne production unit. "We are redefining our business model with a plan to focus our production and competence on one site," said Mr Suominen. "One compact and efficient production line, using raw material from our upcoming investment in Varkaus, would be able to service existing and future market needs."

Scheduled to start up in the second quarter of 2016, the new line will have an annual capacity of 100,000m3 and is expected to generate sales of €50m a year once it is running at full capacity. It will require around 250,000m3 of spruce and birch logs a year and log handling will be shared with the Varkaus sawmill.

"Varkaus is an ideal location for this kind of production. Besides utilising the available premises and the industrial infrastructure and efficient logistics, we see a clear benefit in terms of raw material availability and wood sourcing optimisation. The panel production will be using spruce and birch, partly also in sizes that we have not been able to utilise to the fullest before," said mill director Jarkko Tehomaa.

The new venture will create 80 jobs at Stora Enso and around 70 jobs indirectly. Stora Enso has signed a purchase order with Raute for the entire LVL line, from peeling to LVL production. A decision on further processing, panel manufacturing and cutting will be made soon, TTJ was told.

"This investment is part of Stora Enso’s transformation to a customer-focused renewable materials company," said Mr Suominen. "With this investment we will be able to meet growing urban construction needs, service new geographic areas and markets and offer our customers a wider range of wood product solutions."

The Varkaus site includes a whitewood sawmill, pulp mill and a containerboard mill.