The strength of the Swedish krona against both sterling and the euro has put pressure on Swedish sawmills, forcing them to trim prices to compete in UK and Continental markets.
Shippers still view the UK as an important market, but Swedish mills are finding it difficult to keep prices in line with those being quoted by producers that trade in euros, such as Latvian sawmills. Cheaper quotes in sterling from British mills are also tempering prices and holding back exporters’ hopes of raising selling levels.
High log costs and relatively weak selling prices are squeezing Swedish mills’ margins to the point where there is little hope of making a profit this year, and there are wide-ranging concerns that more producers could go bust in the first half of 2013.
The north African and Middle Eastern markets have proved a lifesaver for some shippers, but an increase in trade from western European buyers is necessary to improve their prospects.
Contacts among Swedish shippers confirmed that mill production fell in September against the same period last year, with the biggest cut in whitewood down by more than 16%. One producer said there had been an overall reduction in whitewood production in the year-to-date in response to falling demand from traditional markets such as Holland, and the loss of business from struggling eurozone countries.
Sawmills and agents concur that whitewood production needs to be kept under strict and sustained control to avoid any further price weakening. Many shippers believe further cuts in output are needed to ensure supply is matched to current demand, but mills that have invested in ramped-up production systems are not geared to produce economically unless their output is set to maximum. Even if further whitewood production cuts were implemented, they would be unlikely to guarantee the mills any kind of profit between now and the end of the year – or into the first quarter.
Latvian shippers have benefited from a softer euro, but many are struggling with fibre shortages as sawlog availability has declined throughout the year. This is the result of a reduction in harvesting quotas, and it is now becoming a serious issue.
One Latvian contact commented that forward sales to the UK for the last quarter of 2012 were the highest for some years, but there were concerns over fibre volumes for shipments running into 2013. He said there were already difficulties with some UK sizes, and some buyers were pressing for contracts to be resolved for the period up to the end of March 2013 as they believed whitewood supplies would gradually become harder to obtain.
Another Latvian exporter said that the flow of logs to his mill had become "disturbingly low" and it was not possible to operate at full production. He added that the current weakening trend in demand was similar across all markets, and most of the actual trade was aligned to customer relationships rather than general market forces. He noted that Japan, north Africa and the Middle East remained the strongest markets, but it was important to keep all buyers supplied.
Softwood exports from Latvia rose by 3.75% during 2011 to just under 2 million m3 , with a steady return to the UK market based on specification and competitive prices. Swedish exports of coniferous sawn wood increased in 2011 by 2.6%, according to figures published by the UNECE. Estimates for 2012 expect a figure of 11.4 million m3 , 2.2% below last year, with a further reduction to 11.3 million m3 in 2013. While Swedish producers are expected to cut exports, Finland’s volumes are forecast to remain fairly static at 6 million m3 per year, although six years ago the figure was closer to 8 million m3 .
In the redwood market, prices have remained firm, supported by strong demand from countries along the north African coastline. Finnish exports to the UK fell by 3% in the first half of the year to around 230,000m3 whereas trade with Egypt, the largest buyer, rose by more than 30% to 500,000m3.
Imports of Swedish redwood to the UK marginally rose by approximately 1.5% to just under 400,000m3, but the increase of Swedish redwood volumes to north African countries in the same period grew by over 30% to over 1.3 million m3 .
In spite of the difficulties in the eurozone, combined exports of German and Austrian softwood increased in 2011 to 12.656 million m3, although this increase was less than 0.25%. Estimates for this year are set at 11.4 million m3, almost 10% down, but are predicted to rise again in 2013 to 12.2 million m3 – making the region a significant global exporter.
In Canada, whitewood prices have been rising steadily throughout the year but have recently plateaued. East coast prices are 20% higher than last year’s and west coast prices have settled at approximately 30% higher year-on-year.
One contact from a large Canadian shipper said that business had slowed in the run-up to the forthcoming US presidential elections, but any further price movements would be upwards. Recent improvements in US housing figures have also helped to strengthen the market’s prospects as lumber futures have rallied.
Exports of softwood from Canada have been rising from 21.886 million m3 in 2010 through 23.797 million m3 in 2011 to an estimated 25.546 million m3 for this year. Forecasts for 2013 are expected to show a rise in exports to 26.428 million m3 with the bulk transhipping to the US and the balance continuing to satisfy growing demand from China and the Far East.
Many in the trade expect the UK market to undergo more financial pressure along the supply chain through agents, importers and merchants for the rest of 2012, and well into the first half of 2013. Cutbacks by producers may cause certain shortages in spruce and this could help keep prices firm.
Imported timber will struggle to compete on price with home-grown material, but demand for C24 and wider specifications will ensure the current share of volume is maintained. With shippers being squeezed between high log costs and weaker selling levels, currency exchange rates are likely to become more of a deciding factor as to where they can best place their goods.
Now that the Olympic Games are over, there is concern even in the south of England that the market might not reach expectations. The trade is now turning its attention to government policies in the hope they will boost housing and construction sooner rather than later.
