Summary
• This year Latvia’s sawnwood exports are expected to fall to 55% below 2005 levels.
• There is less emphasis on value-added products.
• The weak pound doesn’t make the UK a favourable market for Baltic shippers.
• Redwood now accounts for 70% of Baltic production.
During 2009, exports from the Baltic region fell by more than 400,000m³ (19.1%) from the previous year, with Latvia, the largest exporter, shipping 10.3% less volume in sawn softwood. According to projections, Latvia’s exports of sawn softwood are expected to fall again this year to under 1.1 million m³ – a drop of more than 55% compared with 2005.
This reduction can clearly be seen in importers’ yards and quaysides in the UK, where the presence of Baltic brands has diminished considerably against proportionate increases from Sweden and Germany.
The recent decline of sterling against the euro, Swedish krona and Canadian dollar has widened the price gap between imported and home-grown softwood, and this has significantly increased demand for home-grown from timber and builders merchants. Although most UK mills only produce C16 from whitewood, the specifications will satisfy the main areas of demand, and with a £25-30/m³ differential against imported wood, British softwood is gaining market share.
The true replacement costs from the Baltic mills and other north European producers have not yet been reflected in the UK, mainly because importers are basing current selling prices on landed stocks bought in the third quarter of last year, and also because some traders have cut their margins in the wake of fierce competition.
Forward price
The forward price of imported material equates to a further increase of £25/m³, which should open a pathway for mills in the UK and Ireland to increase prices and improve their profitability. Importers are not being pressed by shippers to take stocks as in previous years because most of the Baltic mills, and their other North European counterparts, have trimmed production in line with demand. In addition, other markets such as North Africa are more buoyant than the UK and prepared to pay higher prices.
Contacts in Continental markets say the weakness of the pound is also driving more volume from Latvia away from the UK and into the Dutch and Belgian markets.
Baltic producers are currently cutting a far higher proportion of redwood for carcassing specifications while whitewood logs are harder to obtain. There is a general consensus that redwood now accounts for 70% of the volume being processed.
UK buyers have a general preference for whitewood as the knot sizes are smaller and redwood is more prone to discolouration under wrapper when left out in the merchant’s yard. Redwood discolouration has become less of an issue as demand for treated wood has strengthened, but strength grading from Baltic pine is more problematic.
Redwood market share
For those few mills sorting and grading high-end Baltic redwood to joinery specifications, yields are still consistent and they are selling every stick they can produce. The massive cutbacks from the Nordic producers over the last two years have created a shortage of many redwood sizes and, where they can, Baltic mills have stepped in to take a larger market share.
Although UK buyers still maintain good relations with Baltic shippers, the exchange rate, coupled with the downturn in demand, has prevented them from making significant commitments in the first quarter. Current prices in the UK are so far adrift from the forward price of imported timber that shippers are continuing to place a high proportion of their goods in other markets.
In some cases, sawmills have demanded extra premiums over and above prices agreed by contract, saying that the goods would not otherwise be shipped. This stance reflects increased running costs, particularly heating and electricity, and the recovery of sawlog prices from lower levels during the early part of 2009.
A notable statistic in Latvian export trade figures for sawn wood is the comparison between the fall in revenue and the decrease in volume. In the first half of 2009, the volume of exports fell by 21%, but the value in monetary terms fell by almost 40%. This indicates a fall in processed and value-added products over and above the basic sawn product.
Government support
To improve the prospects for the sawmilling industry, the Latvian government supported a move at the end of 2008 to increase the allowable felling levels from state forests in 2009, hence an apparent improvement in log supply during 2009. The global downturn in demand last year was too strong for the industry to fully capitalise on the situation and increase sales, but the strategy did help to reduce fibre costs, benefiting those mills still in full production.
One Latvian sawmiller commented that although the internal economic position in the Baltic region is regressing in terms of employment and finance, the current balance between supply and demand in the timber industry is working well. He said that most markets are quiet, but stocks are low and many customers are under-bought. As the mill produces softwood specifications, so they go straight out for shipment. Another shipper from Latvia said his mill was fully sold until the end of March and prices were closed at “decent levels”, not a bad position really.
But UK agents are finding trading difficult as they face a supply-driven market. Finding customers who will commit to a reasonable volume is not an easy task, but attracting shippers to sell to the UK at lower rates than other markets is even harder.
