Summary
¦ Demand for British timber was strong through to the summer.
¦ Log prices rose, in some areas by 50%.
¦ The price gap between British and imported timber has narrowed.
¦ Stock levels will need careful managing through the winter.
¦ Plant health issues are causing concern.
At the time of the last British-grown market report, the sector was just emerging from the worst winter for decades, but from that point it was largely a case of onwards and upwards, with production at full tilt and prices on the rise.
“Once the thaw set in it was remarkably busy right across the UK forest products sector,” said a spokesperson from the UK Forest Products Association (UKFPA). “It was a case of all guns blazing to meet customer demand because there had been a certain amount of frustration during the bad weather when order books were very strong but there was some difficulty obtaining the raw material.”
However, he added, it wasn’t solely a case of pent-up demand, but of a strong underlying demand that continued to the end of July.
“I can’t fault demand from April through to July,” agreed a sawmiller. “If we’d had more wood we could have supplied more wood and that’s probably the case for all British mills.”
“Production volumes rose substantially and are now where we’d expect them to be,” confirmed another.
Log supply
Tensions in log supply earlier in the year and subsequent strong demand have pushed log prices up and, as a consequence, enticed private growers back onto the scene – although not as rapidly as some expected. “Some in the private sector have been a little slow to anticipate the change [in prices] and so supply hasn’t kept up with demand in the way it could have done if we’d had a steadier market,” said a ConFor spokesperson.
He added that the delay between wanting to fell and obtaining the government licence to do so, particularly if the grower wanted to restructure the species content on replanting, hampered the ability of the private sector to respond to price and demand change. “Deregulation is one thing we’re keen to look at with the new government because the current regulatory and bureaucratic mechanisms we have in place are making it difficult for businesses to operate efficiently,” he said.
“There has been a 50% increase in the log price since January,” said one producer. “It’s been more stable over the last six weeks, so it’s reasonably well balanced and no-one is suffering from shortages and the specification balance has been okay, too – but log prices aren’t showing any signs of dropping back.”
“Everyone is bidding against the same parcels and we’re seeing a lot of competition from Irish mills,” said another. “They have been the biggest thorn in our side.” This latter phenomenon is causing “some tensions” in the market, particularly on the west coast of Scotland, which the Irish producers are targeting for supply. “They’re creating quite significant demand in a localised area,” said ConFor’s spokesperson.
He also identified the emergence of a “north/south divide”. “If you’re in Scotland you’ve got a lot of people chasing your wood – partly due to the Irish interest and partly due to the construction market providing an outlet. Further south there are more of the traditional fencing and pallet producers and those markets quieten down at this time of year. So people in the south are looking up north and being quite envious of the prices being achieved there.”
Import substitution
As mentioned, underlying demand has pushed British mills into overdrive, but they are well aware that much of this is still due to import substitution and that life on the front line remains tough. And over the last few months that currency-induced advantage over imported material has been ebbing away as domestic mills have pushed through price increases for sawn timber.
Most of the British mills put “fairly substantial” price increases in place in Q3 and that has narrowed, and in some cases closed, the gap with imported timber. “What we’ve seen over the last couple of months – and the last month in particular – is the brutal reality of how difficult the overall market is,” said one sawmiller. “We’ve lost that automatic £20-25 per cube advantage and, because the market has got quieter anyway, we’ve had a bit of a reality check.
“For some people, given the quality differences of the product, a £5 advantage isn’t enough of a gap and they’re opting back for Swedish,” he said. “There’ll be some rebalancing over the next six months.”
Of course, no-one really knows how the currency situation will play out and that is creating a fundamental unease. “We’ve all become avid exchange rate watchers,” said ConFor’s spokesperson. “The majority of analysts predict the pound could soften again – and indeed it has approached the 1.16 mark recently. That’s the level it’s been around much of this year, providing a competitive advantage for domestic suppliers, so if it stays around that level they could be cushioned from the other variables – such as how much the government’s austerity measures will affect public sector construction and general confidence in the housebuilding sector.”
Business traditionally slows at this point in the year, but there is also a view that customers may have overbought in the last three or four months, due to perceived shortages and now, after a poor August and “not great” September, are sitting on higher stocks. As a result, buying has slowed and the market has weakened although “the main accounts are still busy”. There is now some evidence of softening of British prices.
Carcassing is reported variously as “pretty slow” or “steady”, but generally within expectations. Meanwhile the pallets and packaging sector remains a very mixed bag with some customers reporting good business and others very poor.
Pallet and packaging timber is under more price pressure than any other product, according to one sawmill. “Prices went up again significantly in Q3 and the consensus is they will hold for Q4,” said another. “There’s definitely a market price for pallet wood and I think there are still enough people looking to buy who are remembering the real availability problems they had at the beginning of the year and who want to get a long-term, secure supply of British timber. But there is still widespread nervousness about how busy the pallet sector is going to be.”
Palletwood
More palletwood has become available as merchant fencing has gone off the boil, after a “not great” summer. Agricultural fencing, however, has continued to be a star performer and demand for treated posts with service life guarantees has been very strong.
“We had a further price increase over the summer and the agricultural sector is looking good for us right up until Christmas.”
One potential restrictor could be the availability of good quality redwood for agricultural posts. “We’re at that tipping point that if we went out and pushed for more we’d probably push log prices up across the board.”
Sawmills are finding ready markets for co-products and the biomass sector, while not receding, hasn’t forged ahead to quite the level that was feared, although it was cited by one mill as tying up harvesting machines during busy periods.
Trade associations are continuing to keep up the pressure on policy makers regarding biomass. “It remains a very serious concern and we continue to try to educate politicians on the hierarchy of use, with burning being the last possible option,” said UKFPA’s spokesperson. “We have had some success with the Scottish and Welsh governments, which is very encouraging, but Westminster hasn’t got the message and that’s a real worry.”
The UKFPA, ConFor and Wood Panel Industries Federation among many others are somewhat on tenterhooks awaiting the government’s decision regarding the Renewable Heating Incentive.
Winter stock levels
Looking forward, mills are now considering production and stock levels going into winter. Many are looking at what production levels they can sustain and would probably prefer to cut extra hours and shifts to keep stocks manageable rather than to reduce prices that have been so hard fought for. “We’ve made a conscious decision to keep stocks low because we don’t want to devalue the product,” said one sawmiller, while another said he thought a “controlled stock build” was on the cards.
However, at the back of many people’s minds is the spectre of another winter like the last one. “Was it really a once in 30 years event?,” speculated one contact. “It will be interesting to see if mills take more precautions and build up more log stock,” said another. “Some people have very short memories.”
