Summary
• Agents report little interest in the forward market as buyers lack confidence.
• The UNECE predicts that US softwood consumption will fall by more than 2 million m³ next year.
• Demand from Japan is also slowing.
• The Russian sawmilling industry has fewer forward contracts than this time last year.
• Redwood is set to remain firm but whitewood will be slower to recover.
Demand in the UK for softwood has remained weak through the fourth quarter, and competition among timber importers has become fierce as they lower prices in an attempt to increase their market share, and reduce their stocks. Agents report that there is very little interest in the forward market, as buyers lack the confidence to make significant commitments. However, some importers have indicated that they will be back after the holiday with new enquiries in January for February arrival.
With the US housing market remaining poor, pressure is bearing down on the large producers in Germany and Austria, sawmills that have depended heavily on North America to take a major percentage of their production. In addition to the problems caused by the slump in the US market, demand from Japan – another important market – has been at a low ebb.
According to United Nations Economic Commission for Europe (UNECE) figures, US softwood consumption is predicted to drop by over 2 million m³ in 2008, while imports are expected to fall by just under 1 million m³ compared to this year – over 7.5 million m³ less than in 2006.
German production
Given the weak position of their largest export markets, German mills are attempting to force volumes into any alternative market that they can. In order to do this, prices have been cut to the bone, and they have influenced other producers to follow suit.
Some German mills are still using high volumes of storm-damaged logs, and this is making life difficult for the others, which are buying freshly cut fibre and paying higher market prices. At the higher levels, it’s impossible for mills to continue competing in the UK at the current selling level, and there are signs that some are starting to pull out.
While the larger UK importers have been subjected to the pressures of a volatile market, the smaller timber and builders merchants have shown some resilience in the face of weakening market conditions, and a number of contacts have commented that recent trading figures exceed those of the same time last year. But just how much timber alone contributed to these improved figures remains unclear.
Redwood has been under pressure since July, when demand for decking profiles weakened, but to a much lesser degree than whitewood.
During November, and over recent weeks, spot demand for joinery grades has re-awakened to some degree, but forward markets are still dead by comparison. Ex-stock sales of landed goods have been attracting discounts in order to keep some turnover going this side of the Christmas holiday, but traders report that payments are becoming increasingly difficult to collect from their customers. The amounts tied up in slow-moving stocks are beginning to materialise in an ever-tightening problem of credit control and cash flow.
There is some interest in sixth grade on the forward market among UK importers and industrial users, but prices have fallen back by up to 10% from their peak levels in the first half of 2007 when they were trading at a proportionally higher rate than other grades.
Redwood prices
Nordic shippers expect some weakening in redwood price levels during the first quarter of 2008, but are not expecting an adjustment of anything beyond 5%. They predict that the market will firm again as the spring approaches, particularly in the north of Sweden where redwood sawlogs are still in short supply, and sawmills have cut production significantly to compensate.
Some shippers report that North African markets have reopened for some business, and contracts for the lower grades in redwood are being placed for prompt shipment. Although there is still a high volume of softwood stored at the quayside in ports such as Alexandria, the condition of the stock is deteriorating rapidly. Importers hope that the injection of some new bright stock will help make the overall appearance of their inventories saleable and fill the gaps where some items have become too discoloured to sell.
Like its Nordic counterparts, the Russian sawmilling industry has also slowed down, and forward contracts are fewer than at the same time last year. Russian whitewood is reported to be in plentiful supply, and mills are listening more closely to buyers’ requirements. Where forest products groups were once only concerned with optimising the yield from every log, they are now willing to produce improved specifications with a wider selection of lengths.
Specification is a crucial factor in today’s market, and buyers are becoming more demanding in order to compete with alternative products such as structural engineered wood and laminated joinery sections that are produced to meet end-user requirements.
One of the strengths in the softwood market this year has been a general upturn in the demand for cladding. Western red cedar has been fully sold by many stockists, although supply has been hampered by strike action in BC, where most of the sourcing takes place. Siberian larch has also been in high demand, and there has been an upturn in the market for Thermowood in decking and cladding applications.
Modified wood products
As demand for engineered wood products grows, modified wood products are also beginning to take a real foothold in the market. Many of these products, such as Thermowood and acetylated wood, carry high environmental credentials combined with enhanced performance ratings that appeal to architects looking for new ways to specify timber products.
Looking ahead to next year, the softwood export forecasts compiled by the UNECE show some interesting projections.
German mills are predominantly producing whitewood specifications, and from a current position of 7.1 million m³ of softwood exports, a further 100,000m³ is forecast to be available next year. This figure is expected to be matched by Austria, and in combination this region will be in position to export over 14 million m³ in 2008 – twice the total level of UK imports. One UK agent commented that imports of German softwood had almost appeared overnight, and the volumes had impacted on Swedish and Baltic carcassing shippers, making it difficult for them to match the price levels. There are several UK traders who believe the German production figures may actually be understated.
Russian exports
Russia is expected to increase exports overall to just under 18.5 million m³, a further 450,000m³ than 2007, but log exports are predicted to fall by 8 million m³ from 19 million m³ to 11 million m³. This fall in log exports is tied in with the tax placed on unprocessed timber by the Russian government; however, due to Russia’s application to join the World Trade Organisation this policy may be reversed to comply with regulations.
Finland’s production is predicted to fall by 100,000m³ to 12.5 million m³, while exports should remain steady at 7.8 million m³. One of the larger sawmilling groups commented that these figures relied on a cold winter to allow access to the forests for logging, otherwise shortages might help to drive prices back up.
One of the interesting statistics regarding Sweden’s sawmilling industry is the forecasted drop in domestic consumption from last year’s high of 6.5 million m³ to 5.7 million m³ in 2008. With production set to remain steady at 18.5 million m³, the excess of 800,000m³ is expected to go for export, bringing that figure to 13 million m³. Again, as with the German statistics, some traders believe that these figures may be understated.
Global exports from Canada are anticipated to remain steady during 2008 at just below 35.5 million m³, around 3.5% less than five years ago in 2003. The slowdown in the North American market, combined with weakening price levels around the globe, is putting pressure on the lumber industry on both Eastern and Western Seaboards and many mills have curtailed production.
To summarise the position of the softwood market as 2008 approaches, it is one of extreme caution from buyers, while producers have a very mixed perspective, with some likely to continue producing and others to reduce output.
Redwood is set to hold relatively firm, but whitewood is unlikely to make any serious recovery at least until the second quarter unless there are some major production cutbacks at the sawmills.
