The hardwood trade consensus is that business has become tougher through the first quarter. It’s also generally agreed that this is down to mounting economic uncertainty resulting from lack of clarity on Brexit.
“Business for the quarter as a whole looks OK,” said an importer. “But it’s got steadily more difficult and it’s hard to conclude anything other than it’s due to Brexit.
February and March were worse than January and April was worst of all, with tough conditions compounded by the Easter break.” In the circumstances, said an importer/ distributor, customers are becoming increasingly cautious.
“Forward ordering on African and Far Eastern has dried up,” they said. “Some customers are sticking their necks out on North American, but then that’s not such a commitment as on African, for example, where you’re talking four to six month lead times.”
Among customer sectors the slowdown is reported to be worst in construction. “Confidence in the industry has been ebbing away for six months,” said an importer/distributor. “Those orders for 500 doors for hotels or cladding for a new shopping centre just aren’t happening.”
A growing number of continental European suppliers targeting the UK and adding to the competition, is being seen as a sign that market conditions are also deteriorating across the EU. This in turn is viewed as part of a deepening global economic malaise, set to compound the UK’s Brexit stagnation.
There’s also reported to be a large volume of stock on the ground, in part due to importers increasing buying late last year to hedge against customs and port delays resulting from Brexit happening, as originally envisaged, in March.
A consequence of these various factors is an increasingly competitive market and mounting pressure on margins.
“There are some stupid prices being offered,” said an importer. “The medium sized businesses are perhaps most wary about selling for peanuts, but bigger operators with a high overhead to service are cutting prices, as are smaller guys who are keen to convert every enquiry they get.”
Importers themselves have also curtailed buying and minimised stockholding, with one saying that if they run short on an item, they’re buying from other importers and merchants rather than place new import orders.
“We’re taking it week by week and not second guessing anything at the moment,” said an importer.
While the hardwood trade seems generally positive that the EUTR and FLEGT regulations are being incorporated into UK law post- Brexit, there is also some concern about the fact that due diligence will have to be undertaken on imports from the EU.
“It won’t affect us particularly as we operated due diligence type checks prior to the EUTR and continue to undertake them on all imports for reputational risk reasons,” said an importer. “But for some it will entail quite an additional administrative burden.”
Challenging market conditions are also thought to be causing intermittent direct importers to buy instead from larger operators to minimise workload and risk. One particular anxiety, said one agent, is timber getting into their supply chains via EU importers from non-EU eastern European sources, notably Ukraine. “Previously that would have been the due diligence responsibility of continental operators,” they said. “Post Brexit it will be down to UK importers to police.”
“We saw this happening when the EUTR was implemented, with companies that only imported occasionally opting for trader status and falling in behind better resourced operators like us,” said another importer. “So to an extent we are benefiting from the current situation.”
As far as individual species are concerned, in the context of a difficult market, demand for US white oak, ash and walnut is reported to be relatively robust, but sales of cherry and maple, “remain unspectacular” and red oak volumes, after picking up for some in 2017, are down.
There are mixed views on the state of the tropical market. One importer/distributor reported continuing decline in demand, but another said they had actually seen sales of African hardwoods increase, notably sapele, iroko and sipo.
“But part of the reason may be the impact of Rougier downsizing its African operations rather than any growth in the market,” they said.
Whether Rougier reopening its Cameroon sawmill will alter this situation remains to be seen. “It is good news,” said an importer/ distributor. “But it’s tempered by Wijma’s decision to close its Ivory Coast sawmill and Olam selling its CIB operation in the Republic of Congo.”
Demand for Asian timbers, meranti, keruing and bangkirai decking is reported variously as “steady” and “unexciting”.
In terms of supply, availability of African species is reported to be reasonably good, partly due to a decrease in demand from China. The qualification is that sapele is said to be becoming tighter, with less coming out of the forest, iroko deliveries tend to be running late and framire continues its historic decline.
Several importers reported that the bottlenecks at the under-invested and congested port of Douala in Cameroon are being worked through.
“We had been diverting shipments to Pointe Noire and the new port at Kribi, but Douala does now seem to be dealing with its problems,” said an importer.
Meranti and keruing have been difficult to obtain, particularly PEFC-certified out of Peninsula Malaysia, but the supply situation is reported to be easing.
Good availability of European oak is also attributed to the slowdown in the Chinese market. Meanwhile views on European beech vary. Some say demand has contracted due to the loss of the UK fire door market for beech, although others maintain sales have been made up by other end uses. Availability of steamed beech is reported to be good, but some dimensions in colour no defect are harder to source.
As for North America, importers report that US suppliers have been hit hard by the US-China trade war, with the latter, which accounted for up to 60% of all US hardwood exports and 70% of red oak, charging a 10% tariff on imports.
As a consequence, in the second half of 2018, American shipments of white oak were reported down 32% and tulipwood 44%. There is, however, no sign of US mills attempting to offload lumber on the European market.
“There’s no possibility of that as we’re such different markets,” said an importer. “Europe buys FAS white oak, China 1 and 2 common in both white oak and red and generally lower grades of other species.”
“Where the trade dispute has affected us is that, as the US mills are cutting less 1 and 2 common, there is less FAS white oak, and availability has also been affected by the wet American winter,” said another importer.
US tulipwood supply has also been badly affected by the wet weather, but availability of ash, walnut, cherry and maple is good. Where supply has tightened in particular is in certified US hardwood due to the FSC introducing new criteria in controlled wood certification. One source said this will result in FSC controlled US hardwood no longer being available, and FSC consequently becoming “increasingly irrelevant” to the US industry.
The good news in current market conditions, importers generally agree, is that prices across the board have mainly remained stable to firm.
Some offers are reported in US white oak, but otherwise prices on most American hardwood are firm, as are African.
European oak prices are also stable, while beech log prices at latest auctions are up and one importer said they were looking to edge sales prices up 5-10% over coming months.
Another said they didn’t expect sudden hikes. Meranti and keruing prices have increased due to tight supply, with rises of 5-10% cited.
The species which has seen price falls is US red oak, the timber hit hardest by Chinese trade tariffs. But importers still see increasing its UK market share as a challenge.
“It’s a nice species, suited to many applications, but it’s just not what specifiers envisage when they think oak,” said one importer/distributor.
Another importer said that to create impetus behind the species, it’s the specifiers that need to be converted.
“They need to be asking for it as it’s unlikely to get much of a push from the trade when you consider it’s US$2,250 per thousand board feet, compared with US$4,000 for white oak, so selling it you’re taking a 45% hit in revenue,” they said.
Despite its higher price, importers say modified timber, led by Accoya, continues to make inroads into the hardwood market and the sector is keeping an interested eye on the fortunes of relative newcomer Lignia. At the same time, one importer said they were increasing sales of engineered hardwood.
“We’re now offering solutions in engineered product not just an inventory list,” they said.
As for the outlook, the consensus is that it will be difficult to make reliable predictions until there is resolution on Brexit. The strategy going forward is one of caution and keeping a tight rein on purchasing “And even when there is a Brexit decision one way or the other, things won’t pick up immediately,” said an importer.
“The year definitely won’t live up to the expectations we had entering it. If everything is settled soon, we may see some upturn in the third and fourth quarter, but the market has lost so much ground it’s difficult to see that being made up.”
