With the end of the year in sight, softwood traders are looking back on the past three months as a damp squib – literally. The floods which caused so much devastation to homes around the country also had a serious effect on building activity, leaving sites washed out, with some even abandoned until the new year.
Bad weather has also hampered logging operations in northern Europe, and contract shipments have been running late from many exporting mills, creating shortages during September and October in certain specifications of landed stocks in importers’ yards. Consequently, terminal operators with a full complement of specifications have benefited from a period of increased demand, as importers were forced to make interim purchases while waiting for late cargoes to arrive.
Nordic production is expected to rise sharply in the new year as a result of strengthening demand for logs and sawmill residues from the pulp and paper industry. Prices in the softwood market are already very low, but if supply continues to grow into the first quarter of 2001, a further price decrease will result. For most importers and exporters alike, this prospect is too disastrous to contemplate. Baltic producers would be the worst hit because they are already absorbing a 12% currency loss as a result of the weakness of the pound, which is trading at around US$1.43/£1.
A further fall in prices would leave a large number of sawmills with no choice but to close their productions down completely.
Cheap caracassing
The carcassing market has been influenced by cheap offers from Swedish shippers, and prices have been reduced both in redwood and whitewood specifications. For those importers willing to buy kiln-dried strength graded redwood, there are extremely cheap offers circulating on fax, some as low as £105/m³ fom, but specifications may be quite limited.
The overall price of kiln-dried and strength graded whitewood is averaging around £114/m³ fom taking all sources of supply into consideration. This represents a fall of roughly £3-4/m³ over the year, but the Swedes’ price levels have particularly undermined the dry-graded carcassing market with selling levels at approximately £4/m³ below the Latvian and other Baltic shippers. The pound is holding at an exchange rate of SKr14.40/£1, and this is giving the Swedish mills a more favourable return when converting sales prices into sterling.
British export manufacturers still see sterling as an over-valued currency and would like to see the pound fall in value against the euro by 20% or more. This would cause a proportionate reduction in exchange values of the pound against both the dollar and west European currencies. A point would be reached where shippers could not absorb the differential, which would either force the price of imported softwood to increase, or compel mills to cease production for the UK.
In spite of the advantage to the Swedes of the krona/sterling exchange rate, the Swedish sawmilling industry has been struggling for several years to return to profit, and a number of mills in Sweden have fallen by the wayside, the largest in recent times being the Fagerlid group.
This month, the Swedish sawmill Limmareds Skogar AB announced closure after 100 years of trading. Limmareds was a modern producer with export markets stretching through Europe, the Middle East and into new markets such as the US. The mill had increased production by 40% in the past 10 years to 140,000m³ per year, and was planing around 25% of production.
To celebrate its centenary, the mill produced a newsletter which gave a history of the company, its investments and technology employed. The tone of the newsletter was one of great optimism for the future, and the company was planning to benefit from opportunities in China. In it, Limmareds’ managing director states: ‘Our next market will be China. Completely new opportunities for wood as a construction material are opening up because the country’s demand for clay cannot be met’. Yet the hardships encountered in the softwood trading climate brought the mill, which employed many local families for several generations, to its knees.
The Swedish forestry group Södra’s results for the first nine months provide further evidence of harsh trading conditions. Although the pulp and paper side of the business showed a satisfactory result, the timber division made a loss of just under £3m on a turnover equivalent to £72m. Södra predicts that the division will cross into profit by the end of the year if production at the recently commissioned Monsteras mill can be lifted.
Focusing on the first quarter of 2001, agents report that few forward contracts have been placed for carcassing, and prices have either remained the same as current levels, or fallen a little lower. Demand for whitewood in other countries, including Germany, Holland and France, has been fading, leaving the UK as one of the best countries in which to sell. There is too much softwood available in Europe at present and, unless production is reduced, prices will remain suppressed for some time.
Pressure on whitewood
Whitewood for manufacturing and joinery purposes is under the same pressure as carcassing grades. As a result of over-production, the glut of 22mm sawfalling boards on the market continues, and the situation has not been helped by the conversion to flooring grade particleboard by housebuilders who have turned away from tongued and grooved softwood boards. Furniture and bed manufacturers have shown some consistency in demand for whitewood boards, but they are taking a cautious approach to making forward commitments in case prices weaken in the new year.
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“Chinese demand is expected to rise sharply over the next decade from 80 to 240 million m3 a year, a situation which could have a considerable effect on future supply to the UK” |
The laminated pine furniture market is slowing, and news of the acquisition of Ducal by bed maker Silent Night indicates the need for rationalisation.
Turning to the redwood market, besides a weakening of price in some of the narrow middle cut sizes, the situation hasn’t changed since the last report. The market is still working on a short-term basis, as most buyers lack the confidence to make forward commitments. Everyone is watching the whitewood market closely as any further fall in prices is likely to have a similar effect on redwood.
In general, demand has been weaker than anticipated, and some importers have been asking shippers to defer contracts until the new year. On the positive side, the softwood window market appears to be increasing, with a strong demand emerging for factory finished products. It is estimated that wooden windows account for only 15% of the total market, so there is a long way to go for timber to re-establish itself as the market leader.
Speciality grades
Shippers report that speciality grades such as green split and heart-free are selling more steadily than the typical merchant specifications in unsorted and fifths, but most larger end users have established direct connections with suppliers rather than importers.
During the year, a new, or perhaps re-discovered, type of wood has entered the market. Based on high temperature curing, as opposed to normal kiln drying, heat conditioned (not to be confused with heat treatment for pasturisation) softwood boasts some unique advantages.
The technology behind the product relies on high temperatures to break up the cellulose chains within the structure of the fibres, and in so doing the process removes the basic food elements that decay-causing bacteria need to feed on. The result is timber which has inherent decay resisting qualities combined with a natural moisture resistance which enhances its dimensional stability. The concept can be applied to different species, for example pine or spruce, and the timber can be used internally or externally without the need for impregnation by preservatives. One producer, Finnish Ikipuu Oy, uses heat conditioned pine to manufacture cladding and decking.
Softwood that is suitable for external joinery without needing preservative treatment has enormous potential in terms of its appeal to environmentally-aware customers who are suspicious of a material that has been chemically treated.
The Russian redwood market continues to be characterised by a lower price structure than its Nordic competitors. Cargoes have been arriving in the UK close to schedule, and although there are fairly high volumes of landed stock at the quayside, there are some gaps in specifications. Some widths in 38mm fourths have been in short supply, and 38×125, a popular size used for decking, is in short supply after the high demand which lasted until the end of August.
Prices remain very competitive, if not absurd. The base level for Russian unsorted quality is the same as Scandinavian fifth grade prices two years ago!
Russia is well placed to take advantage of the growing market in China along with other potential exporters such as South America. Chinese demand is expected to rise sharply over the next decade from around 80 to 240 million m³ per year, a situation which could have a considerable effect on future supply to the UK.
Chinese imports
The vice-president of the China Timber Circulation Association, Li Xiaobin, stated this month that China logs 80 million m3 from its rapidly depleting forests every year, but still needs another 60 million to satisfy demand. Speaking at an international forum in Fuzhou, capital of east China’s Fujian Province, Li Xiaobin said the most effective way to meet domestic demand was to increase imports. China has therefore cut its import duty from 50% to about 5% and expects Russia, New Zealand, Africa and South America to be the major sources of timber imports.
Limmareds Skogar AB was unable to take advantage of this opportunity, although China was identified as the mill’s ‘next market’ before its closure.
The timber industry entered 2000 full of hope for a new beginning. But as the director of one international timber importing company said: ‘We expected a far better year than was achieved, and at the end of every month we anticipated a growth in demand. In the end this growth always proved to be just around the corner.’
