Summary
• Latvia’s shipments are expected to fall by 12% this year.
• The colder weather has enabled harvesting to return to normal levels.
• Latvia has imposed a reduction in felling volumes.
• Baltic prices are currently more attractive than those from Sweden.

Baltic states producers are still making regular shipments in the global market, but export volumes are projected to fall over the coming year.

Latvia, the region’s most active producer, is forecast to ship only just over 1.5 million m³ in 2012, a fall of more than 12% against 2011. If projections prove to be correct, Latvian softwood exports would trail behind those of Romania for a second year running. Romania’s exports of softwood are projected to be 1.9 million m³, over 20% more than Latvia’s.

Although a number of the larger Baltic producers have increased investments in sawmilling activities, the benefits of increased capacity and upgrades are unlikely to be realised during 2012 as production is already falling behind schedule because of interrupted log supplies.

Harvesting problems

Before temperatures dropped over the last few weeks, forest stands were unreachable following a period of wet weather in December and January, which made the ground too soft for extraction vehicles. Now that temperatures have dropped sharply, the ground has frozen hard enough for log harvesting to reach normal levels. Loggers are striving to increase felling, but deliveries to the mills are still insufficient to ensure that backlogs from December and January are cleared, and that February shipments will be made on time.

In addition to extraction difficulties, the Latvian State Forestry Authority has imposed a reduction in felling volumes that could reduce the expected harvest by 25%. As a result, some mills are already reported to be between 30-40% down on raw material and struggling to meet contract deadlines.

In the UK, importers and merchants are selling increasing volumes of home-grown softwood, but this is generally limited to C16. To get a full specification including C24, many are relying on Baltic and Nordic whitewood, and then averaging their stock costs. Home-grown sawmills are still enjoying relatively firm prices due to the exchange rate between sterling and the euro which is still struggling to breach the £1/€1.20 threshold and making imported softwood more expensive.

Lower euro prices

While north European shippers’ prices have appeared to increase in recent times, a significant proportion of the costs can be attributed to the weak pound. In fact, to stay competitive, many exporters have offered lower euro prices to the UK than they could otherwise obtain in other markets.

In the Baltic region, there is a mix of redwood and whitewood being cut to carcassing specifications. UK buyers are mostly holding out for whitewood to avoid the larger knots and discolouration associated with pine unless goods are pre-treated before shipment, arresting the spread of blue sapstain.

Baltic price structures are currently more attractive than those from most Swedish producers but, with lower production volumes, Latvian shippers may focus their sales efforts towards other countries in the second quarter of the year in the hope of better returns. Some Baltic shippers have already found interest at advantageous price levels from new customers in the Far East and feel that other markets, combined with reduced output, could drive up sales across the board.

Prices are currently fairly stable, but shippers who may be in need of a boost to cash flow are considering buyers’ counter offers for suitable specifications. Additional discounts are also being applied in cases where buyers will accept redwood instead of spruce. This is not the case in the higher grades, where mills are selling planing and joinery quality.

Demand subdued

According to agents and shippers, most markets are currently quiet, and the UK is no exception. Some larger importers have read the longer-term signs of reduced production and placed forward contracts for as far ahead as possible, and in some cases importers and shippers have agreed contracts as far ahead as June. But the medium-to-small merchants are holding back and will rely on terminal operators to deliver stock on a just-in-time basis. Success in selling landed stock will largely depend on who has got the right specifications, rather than just on who is the cheapest.

Shippers expect a lift in demand from the middle of March onwards when stock gaps become critical, and those importers that have held back will be looking to make up volumes at the same time. There is some expectation that prices may edge upwards if shortages occur, but shippers will be forced to recoup some costs anyway because of increased fuel charges.

Adding to concerns about a possible shortage of softwood caused through log shortages and production cutbacks is the major worry of the declining state of the construction industry.

Across western Europe in countries such as the UK and Holland, building is on a downward trend. Most significant housing developments in the UK are confined to the south-east, and large swathes of the country are reported to be very quiet. Timber sales to end-user markets are weak, and traders are keeping stocks as low as possible while they wait for signs of a seasonal upswing.