The Timber Trade Federation’s (TTF) successful reinvention of its Shippers Breakfast, now called the UK Softwood Conference, was a must-attend event on March 7 with price rises and availability issues such talking points in the industry.
The conference, held at 8 Northumberland Avenue in central London, focused on less formal presentations and more opportunities to ask questions.
When Norvik Industries CEO Sampsa Auvinen stood up and told delegates that sawmillers really meant it this time when they said prices were going to increase, the moment encapsulated proceedings and brought into focus the dynamic trading conditions the UK softwood trade is facing. But it was timber statistician Nick Moore of Timbertrends who was first up to cover the UK softwood market in detail.
He said UK softwood imports grew 8.2% to 6.7 million m3 in 2017, still below the prerecession year of 2007 (7.9 million m3). UK sawn softwood production was up 1.8% to about 3.69 million m3 and UK consumption was also up by 5.7% to 10.23 million m3.
Imports from Sweden were up 5.7%; Latvia +4.5%; Finland +8.9%; Irish Republic +24.1%; Germany +16.4%; and Russian imports were down 13%.
Top supplier Sweden maintained its pole position with a 42% market share, followed by Latvia with a 16% market share.
Imported sawn softwood showed an average price of £192/m3 in 2017, compared to £182/m3 in 2016, with prices hitting £200/ m3 in December.
UK housing industry
Against this, Mr Moore explained that the key UK housing industry saw an estimated 7% rise in 2017 housing starts to 198,500 units, compared to a recent 2006 peak of 233,600 units, while a 2.1% growth in UK mortgage approvals was also recorded.
“There has been a steady growth since the crash; however, the growth has moderated,” said Mr Moore.
“Next year we should have eclipsed the 200,000 units per year mark, which is a bit of a milestone in today’s housing market.” He forecast 202,300 and 205,600 housing unit starts in 2018 and 2019 respectively. UK GDP was forecast to grow in 2018/19 but would slow, with UK manufacturing output also slowing.
Mr Moore said the TTF’s National Softwood Division was forecasting 0.5% growth in 2018 to 6.76 million m3 – “a tiny bit of growth”.
He said the Forestry Commission forecast UK sawn softwood production to grow 1.5% in 2018 to 3.75 million m3, while UK softwood consumption was expected to grow 0.8% to 10.32 million m3.
Mr Moore raised the issue of Brexit as a cause for concern for the softwood sector, with 92% of UK softwood imports shipped from the EU and 85% of that going into construction. He also said 50-60% of new public housing was timber frame.
“The softwood industry is of critical importance to the construction/housing industry,” concluded Mr Moore.
Norvik Timber Industries CEO Sampsa Auvinen, covering EU production and global demand, revealed that European Organisation of the Sawmilling Industry (EOS) member country sawn softwood production was expected to have reached 84.2 million m3 in 2017, a 3.15% growth rate, with a further 1% increase forecast for 2018.
German and Austrian production grew 4% and 5% respectively in 2017, but less output is predicted in 2018, while Sweden had no increase in 2017 and a 1.8% forecast growth in 2018.
Finland’s production is expected to have grown 5.2% in 2017, (2018: no change), while no change was expected in Latvian production in 2017 and a decrease for 2018.
“There is a creeping feeling in Europe about a more difficult situation with the raw material,” said Mr Auvinen.
Stocks Low, Costs High
“I know sawmills are always saying there will be big price increases and shortages but this time it’s true. Stocks are low and transport costs are also high.
“Are the mills going to catch up? Probably not. Also EU construction activity is good, with 2-3% growth.”
Mr Auvinen also said increased volumes of timber were going into European cross-laminated timber production – which doubled last year to about 1.2 million m3. “This will further increase demand for sawn timber.”
He said construction activity and demand were improving in all markets and there was optimism about the future.
The issue of Brexit was broached on several occasions at the conference and Mr Auvinen shared his view.
“I do not have a clue what is going to happen. But personally I think sanity will prevail. There will be more difficult negotiations but there will be a deal that is acceptable to all parties and the UK will continue to import from European countries,” said Mr Auvinen.
“What if the nightmare situation happened and imports drop 1-2 million m3? Would it be a disaster? No.”This, Mr Auvinen explained, was because global softwood trade was growing, with new overseas markets taking up increasing volumes.
Chinese Growth
China is now the largest export market for Finland, while European softwood exports to China reached 3 million m3 in 2017. Mr Auvinen said perhaps the growth to China would start to slow, but growth would remain.
The Canadian timber industry is trying to build wood volumes in China by helping the Chinese to change building regulations so they can build more in wood.
Also, the recent first train load of timber from Finland to China demonstrated new logistics solutions to assist the trend towards Chinese customers.
Mr Auvinen flagged up South Korea as the other most important Asian importer of European softwood (outside of China and Japan) but India had the potential to become a substantial market.
“The volumes India is importing on a monthly basis is what China was doing five years ago. It’s a growing market we will be focusing on more and more,” he said.
The Middle East was described as under pressure and importing a bit less, with it being a bit of a troublesome market for shippers in the near future.
European shipments to the US are growing on a steady basis, some 1.2 million m3 in 2017 – double the 2016 volume, with US prices described as attractive.
“Everybody is doing very well in the EU sawmilling industry,” concluded Mr Auvinen, saying that the market had all the elements of the “so-called ‘super-cycle’”.
Prices for raw material and sawn timber would continue to rise, he added.
Meanwhile, Pöyry consultant Heikki Vidgren said global softwood demand in 2016 had exceeded the previous peak of 2005 and was forecast to grow by a further 66 million m3 up to 2022. The global softwood market had reached 335 million m3 in 2016.
But despite high global demand, Pöyry’s research shows that wood would still remain available to markets “but it comes at a price”.
UK sawmilling sector
Keith Ainslie, sales manager at James Jones & Sons, said UK domestic sawn softwood production totalled 3.69 million m3 in 2017, with 3.7 million m3 predicted in 2018 – “flat”, according to Mr Ainslie.
“From an operational point of view, we had a horrible start to the year, the worst start to a year I have seen in my 30 years of sawmilling.”
He said snow and heavy rain had been a problem. Although he believed log availability would improve during the year, too much production had been taken out in the first few months for any notable growth to be achieved.
“But the trend line for UK sawmills is still up,” said Mr Ainslie.
UK sawn softwood price development was good in 2017, starting at £92/m3 for structural timber in January, increasing to £104/m3 in 2018, while volume growth was 3.8% in 2017. Demand was good across all market sectors.
Sawn softwood log prices continue their upward curve, reaching £60/m3 at the end of 2017.
“It’s rising to levels that are simply not sustainable for most UK sawmills,” said Mr Ainslie.
For SME mills, he said, it was a matter of survival.
But higher log prices attract more timber to market, which should alleviate some of the production curtailments.
Mr Ainslie said more timber came to market from south Scotland in January and February than in the previous seven months.
“Timber is available, but at a price,” he said.
Mr Ainslie referred to operational problems in the UK forestry industry, with forest owners becoming risk adverse and shutting forests in icy weather.
“There is no widespread shortage of KD C16 construction timber. But there is a significant issue with availability of small logs.” These logs are typically for palletwood and formwork. “That sector is in for a tough time,” said Mr Ainslie.
Pallet Log Squeeze
As UK sawmills invested in kilning capacity and increased their focus on value-added production, then lower-value unseasoned volumes would reduce, he added.
He said biomass buyers were buying bigger logs and sawmills were sourcing some smaller logs.
“So the small pallet log is getting squeezed and squeezed. Potentially we are seeing the extinction of the UK pallet log.”
Mr Ainslie said certain pallet timber sizes such as 16x75mm could potentially disappear. “I do not think the pallet sector has got that message yet,” he said.
During a panel discussion there was further debate on the Brexit issue, with Swedish Wood’s Mikael Eliasson saying it was difficult to formulate a proper response to Brexit when the British government’s own position was not clear. But he said Scandinavian timber was key for Britain.
Mr Auvinen said Brexit was of some concern “in the back of our minds” but he was “not losing any sleep over it.”
TTF managing director David Hopkins said government representatives had been broaching Brexit with the TTF, putting out feelers on an idea of timber traders paying VAT up front – which Mr Hopkins said would be “crippling”. The TTF was lobbying against this and urging members to lobby their MPs.
The TTF also wanted to see a mutually beneficial customs arrangement with the EU. Mike Glennon, joint managing director of Glennon Brothers, said the Irish timber industry wanted to see a smooth transition to support the key Anglo-Irish trade. He said the Irish timber industry Brexit committee had scheduled a meeting with Ireland’s agriculture minister and the industry was looking at customs regulations.
Rebecca Larkin, senior economist at the Construction Products Association, gave delegates food for thought when she provided figures on UK house prices, the UK economy and key housing market.
House prices, she said, had risen 4.7% in 2016. Housing starts in London last year were 9% lower than in 2016, while net housing unit additions totalled 217,350 in 2016/17.
The government’s target of 300,000 net additions by the mid-2020s required a 38% rise in 10 years, which assumed there would be no recession and also raised the question of who would build these new homes and what investment there was in skills/capacity for labour and offsite.
Ms Larkin said UK GDP was forecast to slow to 1.2% in 2018, while the inflation curve was overtaking earnings growth.
The £21bn RMI sector was predicted to have grown 7% in 2017 but be flat this year and forecast to reduce 2% in 2019.
Statistics show older age groups are increasing their RMI spend, with the largest 65-74 age group spending the most on their homes.
