Summary
• The euro’s rise has made European hardwoods more expensive.
• French Timber predicts the UK will source more North American product.
• EOS wants action over Chinese log buying.
• Oak continues to dominate.

A glimpse was given of hardwood’s future by Timbmet chief executive Simon Fineman during a meeting of the London Hardwood Club in early March.

His views included a trend towards more engineered, fit-for-purpose and specialised products and a continuation of rising hardwood prices, fed by consumer affluence and spending on luxury products.

And, he said, investors were taking an increasing interest in the sector due to timber’s green credentials and its investment potential in the new world of carbon economies.

All of which represents a positive, albeit changing, outlook for the hardwood trade.

More immediate on the minds of traders are the euro, ravenous Chinese log buying and what’s going to happen with the economy this year. Judging by comments received by TTJ, there is definitely uncertainty about 2008 prospects, but also a degree of determination to succeed whatever the prophets of doom say.

As TTJ went to press, exchange rates showed the pound was worth €1.27 – a considerable slip over recent months and making imported European hardwood more expensive.

Peter Thorogood, managing director of Thorogoods, said the euro’s rise had made the market nervous. “It’s the biggest issue at the moment,” he said, estimating that prices had risen by about 10% from mid to late 2007, affecting the staple oak lumber, beams and sleepers.

But he predicted the euro price of oak had perhaps peaked. “Six months ago the French mills were saying you have to pay the new prices or you do not get the wood, but their tone is more conciliatory now.

“I think the French are starting to wake up to the fact that the demand in the UK is starting to drop away and they are very conscious to keep us happy.”

Lower margins

Mr Thorogood said it would be a “very interesting” next six months, but predicted margins would not be as high as 2007.

UCM Timber plc’s Frank Cosentino concurred with the current importance of exchange rates. “UK merchants and traders like an easy life and the euro’s surge over the last two-plus months has created a degree of panic because people who have stocks here are seeing replacement stocks going up in price all the time and they are not normally able to pass on those prices to their customers.

“And there’s always someone in the market who is prepared to sell at crazy prices.

“It’s going to be a difficult year. The credit crunch is having an effect. It’s like an oil tanker, which takes time to speed up and time to slow down.”

International Timber managing director Tony Miles said he saw no signs of the oil tanker slowing down and thought there would always be markets for particular species, whatever the vagaries of the economy and currency rates.

“The fluctuations of currency do not help the market but I think generally the European species have a foothold in the market because of some of the benefits they offer.”

He said good supply lines, a partnership approach, research of product quality, good service and innovative solutions would ensure that “people will shop with you.”

James Latham plc expects to see growth in its European hardwoods business. “We’re fairly aggressive and will be having more emphasis on our timber business, more depots opening and more stock,” director Chris Sutton said. “The market might be slightly quieter but we are aiming to get a higher market share with the products we are bringing in.”

Romania in the lead

A look at the latest UN/Food and Agriculture Organisation statistics reveals that Romania is now the biggest temperate sawn hardwood exporter in Europe, with projected exports of 780,000m³ in 2008, followed by Germany (775,000m³), Russia (600,000m³), Croatia (422,000m³) and Bosnia-Herzegovina (368,000m³). France is seventh, but arguably a more important UK supplier than many of the above.

France is expecting its production to grow during 2008 due to good demand for oak and beech.

Jean François Guilbert, managing director of French Timber, said oak trade with the UK remains “very important”, even if its market share is reducing. But he cited currency related challenges. “From 2008, it’s going to be pretty hard competition in the UK. Because of the US dollar there is going to be more and more US lumber and we cannot afford to compete with that.”

He said this was less likely to affect the boules and beams business, but predicted many UK traders would increase their supplies of North American product, though he questioned the ability of US companies to increase their production.

Oak log exports were down due to strong demand on the French market, especially for the flooring and construction industries. After a downturn in the use of beech on the world market, especially in China, beech log and lumber demand is now increasing due to lack of other species available in such huge availability.

“The strength of the euro, together with the increased price of logs, will put great pressure on the finances of European sawmills,” added Mr Guilbert.

Chinese demand

He said log exports to China were a major concern to French sawmillers, especially at a time of national and European strong demand. Combined with higher log prices, sawmillers are finding it difficult to pass on the necessary price rise on lumber.

Compared with 10 years ago, log export volumes to European countries are down 23%, with most of the business being taken by Asia.

But Mr Guilbert offered some hope. “On the Asian market, the increase of the euro can be compared to the [log export] tax rise from Russia. As a consequence, customers there are already accepting cost increases, but US hardwood will surely increase its market share in Asia.”

The European Organisation of the Sawmill Industry (EOS) has been sufficiently concerned about Chinese and other Asian countries’ log buying to warn that oak might become unavailable on the European market within the next decade.

Decisive action

Though such a scenario would appear unlikely, EOS has united with other federations to urge decision makers in Brussels to take “decisive” action to tackle the situation.

Suggested action extends to securing the supply of the European regional market before exporting, facilitating long-term contracts between forest owners and producers and taking anti-dumping measures, where appropriate, against cheap Chinese hardwood products made from European hardwood.

EOS estimated 2007 total European hardwood log export tonnage to be about 80% higher than 2004.

But Peter Thorogood questioned whether the Far East would be a big issue in 2008. “All of last year the European mills were complaining about the amount of oak going to the Far East, but we’ve not heard a lot this year.”

He also pointed out that Asian countries were generally taking the lower quality wood.

Steffen Rathke, of B Keck GmbH and also responsible for hardwood within the German Sawmilling Federation, said Italian hardwood sawmillers were currently enjoying some advantages following recent storms in the southern part of central Europe as they could benefit from good purchase possibilities for beech.

Mr Rathke said beech remained the most available and most important product for German hardwood sawmills, although it is slightly under pressure. “For oak, large quantities could be sawn, however, not at the recently-asked prices by the forest owners – in the medium term this will certainly cause a problem due to the dollar-euro exchange rate.”

Mr Rathke said demand for ash was increasing, but the specie was not available anymore in large quantities. He cited diminishing demand for maple, cherry and alder.

“The most trendy wood species to be considered at the moment is walnut, even though it is only available in small, quantities and at high prices,” he said.