Since the general election on May 7, UK softwood traders have experienced a measured improvement in demand as some level of confidence returned to the market. But in many cases this has proved to be both patchy and regional, with the strongest activity as usual in the Southeast.
Contacts in the builders’ merchants sector experienced a busy June with good demand across all materials and timber taking its fair share. The trend continued into early July, boosted by rising activity in the housebuilding and property improvement sectors, but underlying construction as a whole (including civil engineering) remained flat with a negative output recorded in May. As the trade moved further into July, many merchants reported a sharp drop in demand for softwood with a weaker outlook for August than anticipated. Companies dealing with national contractors were more confident as new housing developments contributed to steadier demand.
To underline activity in the new homes sector, national house builder Barratt Developments recorded growth in all sectors of its operations in its last fiscal year, which ended in June 2015. In a release posted on July 9 the company confirmed that it had a strong forward order book, and reported a significant increase in the building of affordable housing helped by an improved climate in mortgage lending.
Another national builder, Bovis Homes Group, reported a record number of homes delivered in the first half of the year. These are two businesses from the top 20 UK housebuilders remaining strongly optimistic that growth in housing will continue in the foreseeable future.
From the viewpoint of softwood distributors, however, the growth in new housing will not necessarily be reflected in graded carcassing demand, as so much of that market is now geared towards the use of engineered wood products such as I-beams, LVL and pre-fabricated off-site systems. These are products that tend to bypass the majority of traditional timber merchants, being supplied by more specialist companies that can also incorporate design and manufacturing services.
One contact operating in the I-beam sector confirmed that demand had already seen a 15% increase in sales in Q1 2015, and a further strong level of growth is anticipated throughout the year. Although engineered wood continues to significantly displace the use of solid wood on a global scale, many softwood producers do not appear to be taking this trend into consideration when estimating future demand, and some are still looking to invest and ramp up production.
Softwood skyscrapers
To further underline the growing use of engineered wood, one of Europe’s tallest wooden constructed buildings to be built in London by Regal Homes will use around 1,400m3 of cross-laminated timber. This news follows the widespread announcements reported in the July edition of TTJ where flagship projects using many forms of laminated wood elements have been making headlines. The growing investment and expanding production of engineered wood across Europe is a clear indication of confidence in the future of the industry, while some elements will replace steel and concrete, they will continue to impact on the market for solid wood beams and joists.
Landed stocks of dry-graded softwood are still high in the UK and, as a result, buyers have been maintaining a short-term buying strategy in the expectation that they can get anything they require from the quayside, or the importer’s yard at short notice.
The start of the Swedish summer holidays on July 20 triggered a lull in arrivals as mills slowed and closed. With a drop in regular import traffic from that point, importers and distributors had a better chance to trim landed stock levels, but demand was described by many as sluggish.
Unlike their Swedish counterparts, many sawmills in the Baltic region stagger holidays and continue production, although not always at full capacity. This provided Latvian producers with an opportunity to offer volume for prompt shipment and to close contracts where importers might have gaps developing in inventories.
In terms of product trends, the UK market has developed a growing demand for C24 fuelled by the high yields from Swedish whitewood producers, where the grade can consistently reach over 95% of production in structural sizes. In a bid to compete with the Scandinavians, Latvian producers are offering increasing volumes of pure C24 grade-stamped carcassing, but they still have to find buyers for the C16 as yields from Baltic raw material is lower.
Merchants now see C24 as a very distinct product from C16, which has been dominated by home-grown production for some time, and end-users are more attracted by the perceived higher quality. This preference is irrespective of actual project design needs where C16 may be specified as completely adequate.
"C24 has that extra cosmetic appeal, and we get less distorted rejects left in the racks" said a merchant. "That’s particularly important in the drier weather."
In spite of the trade’s best endeavours, and mandatory changes in building rules, demand for BS-graded and stamped battens is still not as widespread as it should be, and a number of the smaller merchants are reported to be still asking for what used to be described as A-grade. While the mainstream roofing companies are specifying the correct grade, there are still a number of contractors using 25×38/50 ungraded battens for roofing when they should be installing those with the BS stamp on each piece. Resistance to using the right product has been put down to extra cost, but the difference per roof is negligible, probably less than £30 for a reasonable sized semi-detached house.
In terms of the commercial aspects of the market, the main problem affecting all softwood stockists has been the drop in prices, which became steeper in Q2 and has continued to date. The situation has undermined stockists’ inventory values, and without the development of any firm market levels, many buyers have lost confidence in making long-term forward commitments.
When the governor of the Bank of England hinted in July of a possible rise in UK interest rates, it created a climb in the value of Sterling against both the Euro and Swedish Krona. Within days, this became reflected in a revised pricing structure in the imported softwood market as several traders used the new exchange rates to lower prices, and try to force more volume into the market.
After a fluctuating but steadily rising trend, Sterling increased in value over the 12 months from July 2014 by 12.8% against the Euro, and 14.1% against the Swedish Krona (SKr). In the six months from January of this year, the respective differential has been 11.3% and 9.9%, with the sharpest upturn in Q1. In mid-July at the time of this report, Sterling’s exchange value was continuing on an upward trajectory past €1.43/£1 and SKr13.30/£1 to the highest seen in the last five years.
Sterling up, prices down
This has not only affected the carcassing market, but also the value of joinery redwood, which has been drawn into the price spiral – although not to the same extent as structural softwood. One agent commented that shippers’ current prices were now at the bottom and lower offers were unlikely to be accepted, irrespective of any further rise in Sterling. This view was shared by a major sawmiller who said that as far as he was concerned, prices of redwood were at the bottom level and after the holiday his mill would firm selling levels in pounds. Since the start of the year, the value of landed redwood stock has been affected by the falling market, and one distributor confirmed that writedowns had been inevitable to keep the stock moving.
In the cladding market, specialities such as cedar and larch are selling well for those companies aligned to the larger contractors, although Russian larch has been subject to a higher level of competition due to currency exchanges.
Feast or famine has been a regular cycle in the softwood industry for many years. In the current market, the downturn in other buying countries has induced shippers to dump over-produced wood wherever they can, and for the time being the UK remains one of the most preferred destinations.
