The hardwood market was supply driven for a while. Now, according to importers, it’s firmly demand-led.
The UK is generally well-stocked. The tight supply that previously characterised trade across the board has eased, albeit not from all sources, and prices are no longer on a universal upward curve. Indeed in some areas and species there’s been softening, some significant.
Some logistics issues persist, but previously sky high container freight rates out of the Far East are significantly lower.
At the same time, sales until now have proved fairly resilient, with importers describing the first nine months of 2022 from solid to good. However, the cloud on the horizon is evidently the deteriorating economic situation. Energy price-driven inflation and increasing interest rates are draining consumer confidence. The Bank of England says the UK is already in recession, while the World Bank said “one more moderate hit” will tip the global economy into one.
“2023 will be very challenging,” summed up one importer.
“The picture is increasingly uncertain and, while order volumes overall have held up pretty well so far, we’re noticing more hand-to- mouth buying. Customers are increasingly cautious, operating on the premise that well-stocked today is over-stocked tomorrow if demand falls,” said another. “With the addition of recent currency fluctuation, it’s a moving target and we’re continuously revising budgets – so far we’ve done four.”
The current year started solidly for the trade, with demand initially maintaining the robust levels of the previous 18 months.
But some reported signs of increased market caution from the second half, or early autumn.
“We had a decent first six months, some volume drop in July and August, but then September picked up and in October we’ve been very busy,” said an importer-distributor. “But there’s no denying the economic headwinds. We’re not destocking, we’re keeping our commitments and getting trade through. But there is some pressure on margins and signs of customers downgrading a bit, going for cheaper options rather than premier.”
Overall, said an importer, they’d had a good first nine months.
“But the last three haven’t been as good as the first six,” they said. “July and August were slower and September and October failed to regain momentum. It was obvious things were tightening up and, with enough wood in the system, there’s more competitive pricing around.”
Latest developments in North American trade were described as “increasingly complex”.
“The US had a fantastic two years, but is now seeing demand contract in key markets. The heat’s off domestic sales, China and Vietnam aren’t great and Europe is more sluggish,” said an importer. “With prices and demand headed down and costs rising, there’s now a lot of sitting and waiting for things to improve across the supply chain to avoid selling at a loss, although others are having to sell to keep things moving.”
An outcome of the situation is a wide spread of prices for the same product – “as much as 30% from top to bottom” according to one importer.
The US hardwood price reduction most frequently mentioned is in white oak, notably 4qtr.
Eight and 10qtr were reported down just 5-6% over the last six months, but with 4qtr 25%-40% lower.
It’s thought white oak inflation could impact interest in red oak, which was rising when white was at its price peak.
“We’ve more recently had red oak in our inventory, which we didn’t have two years ago. Sales were still only 10% of white oak’s, but it was a start,” said an importer. “But enthusiasm could be dampened now white oak is only a bit more expensive than red, rather than twice the price.”
The next biggest price reduction among US species is in 4qtr tulipwood, reported down 20-30%. Ash has been more stable, but walnut has also weakened.
In the UK, US price reductions have been offset by the weakness of the pound against the dollar. But that is seen as set to change if sterling’s recovery persists and the concern is this will leave some with expensive stocks on their hands.
While some report an improvement in US logistics, others say they haven’t fully recovered from pandemic disruption, with labour shortages the key issue.
“Pre-Covid I could call the US today [mid- October] the wood would be in the container next week, on a ship the week after and we’d get it mid-November,” said an importer. “Now it’s more likely around Christmas. It means it’s difficult to keep inventory as tight as you used to.”
Importers reported no discernible impact to date on the European oak market of the war in Ukraine and embargoes on Russian and Belarusian imports. Availability issues seem to have resolved and prices are reported to have come off 5-6%. An importer said an anticipated rise in log prices may cause some inflationary pressure, but how much of that is passed along the supply chain will depend on demand. The relative stability of the market is attributed to weakening European consumption and, by one importer, to some customers switching to US oak when European oak supply problems were at their height and not switching back.
European beech availability is said to be tighter due to “huge export demand”. Prices are reported up 8-10%.
Where the impact of the embargoes on Russian timber is seen is, of course, in Siberian larch. But the result of it being barred from the UK and the wider European market is not what one importer-distributor expected.
“We thought we’d see more upgrading to modified timber and western red cedar, which is more available and 10-15% cheaper than it was at its latest price peak,” they said. “But more commonly buyers are switching to white wood and adding a black finish.”
African is another story. Sapele prices are reported up 10-15% in the last four to five months, with other species also rising and further firming expected due to increased energy costs.
“African mills seem very vulnerable to the fuel crisis. There are shortages and intermediaries between suppliers and markets are exploiting the situation and pushing prices up further,” said an importer.
Already long African lead times have extended further too, with the fuel crisis adding to long-standing infrastructure and wider logistics issues.
Because of the lead times, said one importer, “there’s a lot of price inflation yet to hit the UK market”.
Two other importers repeated views expressed in our last hardwood report (TTJ March/April 2022) that African inflation was exacerbated due to lower volumes of the UK’s favoured species, sapele, iroko and utile, coming out of current harvesting areas.
An importer-distributor said they weren’t yet experiencing this issue with sapele.
“We’re finding iroko and utile harder to find, but we’re one of the bigger sapele buyers and have a good programme with mills and good volumes going forward,” they said. “That said, we have to get ready for reduction in sapele at some point, for us it’s just not yet,” they added.
At the same time there still seems to be little switching to secondary African varieties.
“End users are still reluctant to change,” said an importer-distributor, adding that what might give lesser known species momentum is development of engineered products – such as laminated and finger-jointed sections – at source. Currently they offer engineered sapele, but it’s produced in Malaysia.
Various issues were highlighted with supply out of Asia. Availability of Malaysian certified was reported to have reduced due to PEFC suspending some concession’s certificates and production and logistics problems resulting from the pandemic seem not wholly resolved. Reflecting this, some prices have been fluctuating, with Indonesian decking, for instance, reported to be “up 3-4% then down the same”.
The positive news is the reduction in container costs out of Asia. At their 2020/21 peak they were reported at US$16,000- $20,000, compared to US$2,500 pre-Covid, and they’re now said to be around US$4,000- 5,000. “Meranti prices are reduced due to our freight costs being down US$7,500 per load,” said an importer.
The latest ITTO Market Information Service newsletter reports a jump in UK tropical hardwood imports in the first five months of 2022, up 34% to US$711m.
One importer-distributor said their sapele imports were up around 69%, attributing this in part to a shortfall in supply of modified Accoya, while an importer put tropical growth down to a post-Covid “catch up on orders and falling freight rates”.
Demand for modified timber this year to date is reported as robust, but with constraints on production at Accsys UK, due to work to increase output, limiting growth in Accoya sales.
“We could sell 30-40% more if we could get it,” said an importer-distributor.
Interest in engineered hardwoods, including temperate, African and red grandis, is also said to be growing.
As for the market outlook, the consensus follows the view of the importer quoted above; the next year will be challenging.
“It’s so far so good this year, but it’s hard to be optimistic about the UK economy,” said an importer.
An importer-distributor agreed the future looks testing, but said the hardwood sector is better placed to weather a downturn than in previous economic crises.
“Businesses have been enjoying high prices and windfall profits for a while, so they’ve got a buffer,” they said. “It may not be easy, but provided prices don’t collapse, if volumes go down a bit, we should still do OK.”
