The British-grown timber sector has been so frenetically busy over the past 18 months that the traditional peaks and troughs of a typical year have been shifted around and largely flattened out. As a result, with quarter four demand now slowing, it’s taken a couple of weeks or so for some processors to quell knee-jerk fears that the market was dropping off another cliff and accept it as a return to normal. The slowing of demand and the resulting 5-10% drop in sawn prices has pushed some focus back on roundwood prices, which may have eased by 3-4% but which remain stubbornly high – and certainly more expensive than they were at the beginning of the year.
"Generally the availability is there if you are prepared to pay the price but that becomes harder when you aren’t able to sell it on as quickly," said a Confor spokesperson. "It’s squeezing margins, particularly for the carcassing mills."
Private growers take some of the flak for high prices but, as a UK Forest Products Association (UKFPA) spokesperson pointed out, that’s a double-edged sword.
"To be fair, increased roundwood prices have allowed an improved return to growers and that, in turn, has helped maintain wood supply," he said.
A fencing and pallet contact told TTJ that his mill had attempted to drag log prices down by putting in lower bids at a recent auction, the results of which he was still waiting for at the time of writing. However, he added that the outcome wasn’t crucial. "If we get the lots at good prices, then fine, but if we don’t get them we’re sitting on comfortable stocks and we don’t actually need it anyway.
"Whereas in other years we might have looked at the fourth quarter and decided to pull back a little, this year we’ve been continually taking our quota of logs throughout the year because we’d rather have it in the yard than in the forest."
There are some reports that log supply from Welsh forests is "unsatisfactory", with the blame being levelled at the new Natural Resources Wales operation.
"There are frequent reports of contracts not starting on time and that a contract to buy wood from a certain forest doesn’t guarantee that is where it will actually come from, which can incur additional haulage costs," said a contact.
"The only saving grace has been that private growers have continued to bring wood to the market [in Wales]."
Private growers may be the saviours of wood supply in some respects, but in others they are causing consternation. Everyone contacted for this market report raised the issue of the availability of FSC-certified logs from private estates.
Many of them are starting to baulk at the cost and "aggravation" of certification and are withdrawing from it and because the private sector now accounts for a significant chunk of supply, it is causing some anxiety.
"It’s not a game stopper for us at the moment but if a lot more of the private estates withdraw then it could become a serious issue for the trade," said one major sawmiller. "It also hasn’t helped on prices because we’re all chasing a slightly reduced volume of certified logs."
Those mills with Licence to Cut volumes are relatively immune but others are seeing a dent in their FSC percentages.
FsC Threshold
"We were 100% FSC but there was more and more private timber coming on to the market so around 18 months ago we took the decision to drop that to 70%," said a sawmiller, adding that, because that still enabled the mill to label its output as FSC certified, the decision hadn’t affected its customers.
The north-east of England and Scotland are possibly more susceptible to this development as there is less spruce and Forestry Commission land and more mixed conifer and private forest in those regions.
While the major mills won’t want to take so much uncertified material that they drop below the 70% FSC threshold, demand for raw material is so strong across a range of markets that growers feel they can look around and find someone else who will buy it.
"The more costly and intrusive certification becomes the more they want to give it up and they are confident they can find markets for uncertified timber," said Confor’s spokesperson. And, he added, selling timber might not be the only income they get from their forests. Following work with the FSC "trying to push back on some of the changes it has been making to its standard", Confor, the UKFPA and the Wood Panel Industries Federation are now working together on a strategy to ease the problem.
"We have to look at how certification can become much more attractive to that ‘middling grouping’ of private estates who aren’t very big but who, combined, are significant suppliers."
As previous British-grown timber market reports have highlighted, demand has been excellent for the last 18 months, and across all product sectors. One knock-on benefit has been that the increased volumes of larch that came on to the market because of the phytophthora outbreak have effectively been "washed through the system".
Fencing in particular saw a meteoric rise in both demand and prices.
"We sacrificed volumes of carcassing material to satisfy fencing demand," said one major sawmiller. "That was beneficial for us in some ways but, as big as our capacity is, we found it difficult to meet demand."
"Fencing prices rose to crazy levels," said another. "Treated featheredge boards were £250/m³ at one point but that wasn’t sustainable and it’s now dropped back to £55-60/m³."
Pallet wood market
The market for pallet wood has been "relatively steady all through the year" and, as it follows the fortunes of the retail trade pretty closely, the run-up to Christmas is bolstering it.
"We have very little pallet stock on the ground but are in a comfortable position," said a pallet specialist. "Prices are holding up at a reasonable level and I’m now starting our Q1 negotiations with customers. Our initial thought is to drop the price by 3-4% to maintain our order books at the current level."
He added that this pricing was dictated by "the large volume of imported material that is available".
"Over the last six months we’ve seen a lot of Baltic pallet wood material coming back on to the market," he said.
Another contact agreed that a lot of buyers had gone back to Baltic material because of the perceived shortages in domestic supply this summer and that in some cases they’d bought more than they needed to and were working through their stocks.
"There are certain sizes [of pallet wood] that are slow moving but overall it’s still pretty healthy," he said.
On the carcassing front, eased edge CLS is said to be "not very lucrative", also because of the impact of a growing volume of imported timber.
"It’s been good throughout the year because it’s been cheaper than imported material but that gap has narrowed," said a sawmiller. "In some cases you’ve got distributors selling imported product for less than the domestic so prices have weakened and 2.5-3% has come off the top end of prices in Q4."
The Swedes in particular have started to take a strategic interest in the UK as it’s one of the few economies that is actually growing.
"Japan is getting weaker and Europe is refusing to take off so they might decide to target the UK more aggressively, particularly as the pound has strengthened significantly against the krona," said a contact.
While a massive influx of cheap imported timber would definitely not be welcomed by the British-grown sector, at current levels imports aren’t causing too much heartache. In fact, in some cases, taking a little market share is relieving some pressure.
"The nationals who have always had a big exposure to domestic timber will stick with it so it’s more the ‘peripherals’ who will switch back to imported," said a contact.
"It also depends on geography," he continued. "There’s always been a strong tradition of C24 demand on the south coast of England and now the price differential has narrowed those customers are going back to imported timber.
"That’s not such a bad thing. One of our national chain customers is looking to buy 15-20% more wood next year and I won’t have that so I need some of those peripheral guys to disappear so I can reallocate it."
The slowing of demand in Q4 – which is partly attributed to the fact that some customers have overbought, fearing shortages – has meant that sawmills now have the necessary "breathing space" to build stocks in time for the new year and any mad rush that may come following a bad spell of weather – as happened this year.
Some of the larger mills have already dropped back from three shifts to two, others from two to one just for December and will review in January. Others are still steaming ahead and have no plans to reduce production. "We’ve done the numbers, we have plenty of space in the yard and have plans to build stock," said one. "A lot of the challenges we had in terms of servicing our customers at the beginning of 2014 were because we didn’t start the year with stocks. Based on what our customers are asking for, if we don’t finish the year with stocks then we have the potential for another shortfall next year."
