Softwood demand strengthened sharply through January and February across the UK, accentuating stock gaps in carcassing specifications left from Q4 2013. This led to a surge in buying as merchants trawled around the industry to rebuild their stocks to satisfy customers’ orders. With the arrival of first quarter shipments, specifications improved and demand levelled off through March, although business remained more consistent in the south-east than in the UK generally.
In addition to a brisk carcassing market, demand for fencing products rose dramatically in the wake of high winds and storms that swept across the country tearing down fences. Many merchants came straight into the market after the Christmas and New Year holiday because weather forecasters predicted the gales that were to last through January.
This resulted in stocks of panels and loose fencing such as featheredge boards becoming decimated, and manufacturers and stockists turned to the UK sawmills for replacements. However, log supplies soon became an issue, and to date there is still an unprecedented backlog of raw materials in the pipeline which is currently predicted to last into the third quarter.
The extreme demand from the fencing sector caused the price of home-grown fresh sawn softwood to rocket and fence panel battens are now reported to have exceeded levels of home-grown strength-graded construction specifications. Whether or not this will influence the home-grown mills to raise prices of kiln-dried planed C16 softwood has yet to be seen, but higher costing of basic products has turned the value in the supply structure upside down.
Last year, forecasters predicted that British softwood production would reach almost 3.6 million m³ in 2014, and if current demand remains firm and log supplies are available, this figure may even be exceeded. As home-grown strength-graded prices are significantly below those of imported material, UK mills still have room to manoeuvre while keeping prices below those of north European producers.
As fencing material prices are rising, so pallet wood is also gaining ground. Strong demand has reduced stock availability in the Baltic region and sawmills have been increasing their prices accordingly. Log prices in the Baltic area were forced up in the second half of 2013 and a significant contributor to this situation was the effect of Chinese buyers offering much higher prices than the local mills were paying. With log exports rising, the subsequent shortages of fibre kept domestic prices firm. Since the end of the second quarter last year, many Latvian mills have steadily increased selling prices by around 10%, and they are hoping for a further 5% from this April onwards.
Chinese quest for fibre
The Chinese are increasing their quest for fibre in every corner of the globe, and having pushed up log prices in many areas of northern Europe by out-bidding local sawmills, their seemingly insatiable demand has created problems for Australasian sawmills.
Last year, over half of New Zealand’s pine exports were in log form, with almost 75% being sold to China. Not only did this open market situation cost jobs and mill closures, but lumber for urgently-needed housing projects such as the post-earthquake rebuild of Christchurch, was in short supply. The same situation affected parts of Australia where log exports and log shortages on the domestic front have been the primary cause of sawmill curtailments.
The global market for wood fibre has become a major issue for the sawmilling industry, and predictions made over the last 10 years about the impact of growth in Asia and competition from the biomass sector have begun to manifest themselves in all forest regions. In the Nordic region, Swedish softwood exports to the UK advanced by almost 19% in January to over 200,000m³ with virtually all the growth in whitewood. In the same month, the strongest market for sawn Swedish redwood was North Africa, with Egypt importing more than two-and-a-half times more volume than the UK. In the same period, China’s imports of both spruce and pine increased by more than 35%. Swedish softwood exports increased by just over 6.5% in January and achieved an average of 7.5% growth in value against the same month last year. Finnish production and stocks held fell in January by approximately 6% against last January’s figures, with pine falling at a faster rate than whitewood.
In the UK, prices of Swedish carcassing have remained firm through the first quarter, but according to some traders there has been a variation caused through volumes of consignment stock being sold under the average market levels. There are worries among south Swedish whitewood mills that a few big producers are increasing volume to improve returns, instead of meeting the market price. One shipper commented that "the last thing the trade needs now is any form of oversupply, especially on the UK and Continental European markets. Many times in the past the trade has seen a sudden supply surge in carcassing markets, and after a sustained period of production control for the last year, it would be very detrimental for everybody in the supply chain if any sector of the softwood market should be undermined at this stage". In other markets, a recent judgement in favour of eastern Canadian producers in Quebec and Ontario reversed the export tariffs paid by the two provinces of 2.6% and 0.1% respectively on exports to the US market, leaving the door open for an increase in trade. Eastern production price levels of 50×100 graded SPF are currently around 11.5% below prices at the end of March 2013, while the same product from the west coast is trading at 13% below last year’s level. The US market is no stranger to Sweden’s shippers, but exports during the start of 2014 showed a slide, in contrast to an upward trend during 2013. Winter weather has had a significant effect on timber usage in the north, but utilisation is expected to grow sharply through the second quarter.
Strong demand from Japan
Demand from Japan has been strong, but government taxation increases on construction activity in the second quarter are expected to slow imports, and exporters to Japan are expecting a downturn in volumes. Swedish exports to Japan fell by more than 21% in January against volumes sold in the same month last year.
North European log supplies improved during the latter part of 2013, and mills in Sweden and the Baltic states have more fibre available to plan production. However, it is still a fine balancing act and log prices are remaining firm on all fronts, dictating that sawmills have to press for increases in finished products to stay in the market. In the UK, the lion’s share of new housing is likely to be taken by engineered wood joists rather than solid wood , but CLS and TR26 for studding and roof trusses should benefit the most from any upturn in activity.
Chinese demand will continue to have a major impact on all sectors of the global market by absorbing raw fibre and returning it as processed and value-added. Without an export tax policy in place by governments, the threat of closure to the home sawmilling and manufacturing timber industries will become more real every day.
Restricting log exports does need careful consideration, however, particularly where volumes are a major part of the country’s international trade and agreements exist.
Russia’s implementation in 2008 of log export tariffs of 25% (or minimum €15/m³) for softwood logs did drive down log exports substantially, and the Russian share of globally traded logs fell from 44% in 2006 to 15% in 2013. This tax was substantially reduced to between 13-15%, as a condition of Russia’s accession to the WTO in 2012. Chinese buyers continued to pursue imports of Russian logs (particularly from Siberia), and in 2013 they bought over 9.5 million m³ which was less than 2012, but imports of cut softwood increased by almost 20% to reach over 7.5 million m³.
Overall, traders are more optimistic about the current softwood market, and they expect the UK market to remain steady for the foreseeable future. As recovery improves, UK buyers may become more aware of just how much volume has shifted to other markets, particularly redwood, where North African buyers are paying premiums for sideboards and many of the mills have much less volume available to supply to an improving western European market.
Russian tension could impact raw material supply
The threat from the latest economic tensions between Russia and the West arising from Russia’s annexe of Crimea could have a wide-reaching effect on the global timber trade.
A recent report by the IHB/Fordaq network in Brussels estimated the value of the EU-Russia timber trade at more than €4bn annually, with a high degree of interdependency between the Russian and European forest products industries. Many European companies in the sector have operations in Russia, and the value of EU exports of wood products to Russia is almost €1.2bn, creating the potential for a serious and wide-ranging effect on the European timber industry if the EU implements a trade embargo.
If log supplies to the Baltic states and Finland in particular were curtailed, the forest products industries in those countries would face enormous pressure on fibre supplies.
