Markets for the UK forest products industry have maintained the improvement seen just before the summer, with what one source described as “remarkably buoyant demand from all sectors”.
The tightening supply from overseas countries is providing new opportunities for UK mills, including extra business from customers who traditionally use domestic sources for occasional ‘top ups’. Higher prices for imports have also allowed an increase in UK prices – a welcome development given the significant rise in energy and fuel costs that mills have had to swallow.
After a quiet ending to 2005 and a slow start to the year, prospects for UK softwood producers had looked uncertain until well into the second quarter. Towards the end of May, however, there was a noticeable pick-up and this does not seem to have been dampened by the summer. Full order books are reported across the board, with good demand from construction, fencing, garden products, pallet and packaging sectors.
There is a slight worry that housebuilding activity might be adversely affected by rising interest rates, but this usually takes a while to have an impact. One source also cautioned that higher demand from UK suppliers might be due to the reduced availability of imports, particularly from Scandinavia and the Baltic states, rather than resulting from customers being busier.
That said, the overall picture is positive. Importers certainly aren’t predicting any easing of supply for the foreseeable future, which adds to the expectation that markets for the UK forest products industry will remain good for the rest of this year and into early 2007.
Raw material concerns
As a result, concerns are being raised about the supply of raw materials. “Five years ago nobody was worried about the availability of logs,” said one source, “but things are a bit different now.
“The continuity of supply from the Forestry Commission/Forest Enterprise has been crucial in enabling the industry to develop, but private growers are expected to provide a growing proportion of future supply – and while the public sector ‘bank’ works on a commercial and predictable basis, the number and variety of private owners makes this more of a challenge.
“In addition, the new 2005 Forecast of Softwood Availability from public and private forests published last month indicates that the previous forecast in 2000 was optimistic. Volumes are lower in the latest report – although they are probably more realistic and therefore provide a better aid to planning.”
Covering 2006-2026, the latest forecast says that availability will continue to increase for the next 15 years, from 12 million m3 (overbark standing) per year in the period 2007-2011, to 13.8 million m3 for 2012-2016, peaking at 14.6 million m3 in 2017-2021 and falling slightly to 14.1 million m3 for 2022-2026. Compared with the previous forecast, supplies of small roundwood from the private sector are 18% less in the first two periods and 12% less for 2017-2021. Predictions for sawlogs are down 9%, 11% and 9%, respectively.
For Forestry Commission estate the figures are down 14%, 8% and 14% for small roundwood and 7%, 0% and 5% for sawlogs.
The majority of this supply – more than 60% – is spruce, but the report notes a threat to Corsican pine production from red band needle blight. This is unlikely to be significant in the first of the five-year periods and research is under way to determine the impact in later years. At present, the disease is known to be significantly reducing annual increment of infected stands in East Anglia.
Private forest owners
For mills, the worry is that the private sector comprises a diverse range of owners, many of whom are not primarily investing in order to supply logs, so bringing them to market is not a top priority. There is also a view that some owners may be looking at rising prices in the current markets for wood products and holding back in the hope that there is a ‘bonanza’ around the corner.
However, this is considered an unrealistic expectation. Firstly, there will always be a limit on the price mills can pay for logs if their end products are to remain competitive against alternative materials. And, as one major mill put it, sawn timber prices actually fell at the beginning of this year and are only now back up to the levels at the end of the previous year – on top of which there have been major increases in energy costs for running the mills and in transport costs.
Secondly, delaying felling means trees will be larger and bigger is not always better because modern mills are geared up to taking logs of a certain diameter in order to achieve optimum production. Larger logs will therefore have fewer outlets – and there’s the risk that they are more prone to storm damage.
None of this washes too well with sceptical growers. They see the rising prices for imports and the increasing demand from UK mills and suspect that the latter are “doing rather well”. Against this, log prices have been pretty stable. There is no problem with availability at the moment, but growers believe this could change.
One fairly quick impact could come from Howie Forest Products, whose new line, due to start-up within the next few weeks, will triple current production capacity. It might take a while to reach full capacity, but the company is expected to cast its net wider for raw materials and is hopeful of attracting increasing supply from the private sector.
While the supply from public sector forests is fairly consistent, there’s a definite seasonal factor in the private sector, with a lot of activity at the beginning of the year as growers seek tenders by March with all work to be completed by September. After a quieter period there is sometimes a late winter flurry.
Many private owners are currently busy with the shooting season and putting wood on the market is not a priority. However, if there is significant demand in November and December they may bring their schedules forward – although logging in UK woodlands over the winter, when ground conditions are poor, is not ideal.
Small roundwood continues to move well in export markets, and has almost reached the point of being a regular supply for Scandinavia rather than a spot purchase. The market for biofuel is also becoming more meaningful, with a number of plants at various stages of planning, preparation and start-up.
Panel industry concerns
The latter remains of concern to the panel industry. Apart from the larger plants, the bigger picture is the cumulative effect of the growing number of smaller scale industrial and local authority schemes and the potential for wider district schemes in future.
Co-firing is the biggest threat because of the relatively little investment required and the speed with which it can be implemented – compared with the longer-term mitigation of increasing supplies of raw material. Government policy is still under review and the industry is awaiting the consultation document on the revision of co-firing regulations, which is expected soon and could influence the amount of biomass consumed.
At present co-firing has relied on imported material but market factors in the supplying countries could intervene, and the panel sector fears competition for its raw materials.
As has been the case for some time, the UK hardwood sector continues with little change. Broadleaf production from Forestry Commission estate continues to increase – in fact, predicted volumes for the five-year periods 2007-2011, 2012-2016 and 2017-2021 are 8%, 14% and 11% higher than previously forecast in the 2000 report. Nevertheless, hardwood production accounts for less than 2% of total production from the public sector.
Companies specialising in hardwood are doing well, albeit with significant trading of imported species. English oak is still required for certain projects, such as renovation, but there is not much volume of quality logs and in some cases access is poor.
ConFor has now completed the amalgamation process and launched itself publicly at the APF International Forest Machinery Exhibition in September. Funding has been secured for the next three years and the organisation has a good base from which to move forward.
The UK Forest Products Association, whose members voted against amalgamation, has moved on from that unsettling period and is getting on with the job of representing members’ interests while also continuing to work with ConFor to develop mutually beneficial areas of co-operation.
