The hardwood sector generally expects the trading year to wrap up around the second week of December. In 2014, however, several traders say that they were shipping orders up to Christmas. The market is also reported to have picked up in January where it left off. The trade overall is positive, with even those who had the usual end of year slowdown, agreeing that business over the previous 12 months had been good and remained so into 2015.
"We may not have seen the volume growth rate of second half 2013 and early 2014, but it remained solid across the basket of species and products," said an importer.
Added cause for encouragement was that demand was sustained against a background of price firming. European prices were quoted up on average 5%-8%, with tropical about the same, while US, underpinned by rising domestic sales and more recently a stronger dollar, were cited up 15-20%. Eight quarter/2" US white oak saw the sharpest increase, up 25-30%, but American walnut and ash also put on ‘ healthy percentages’. "The spot market remained consistently firm too," said an importer/producer.
Further good news was that customers generally swallowed the increases. "Some are still living off old contracts, so there’s a bit of catch-up to do," said an agent. "But most accept it’s a rising market."
An importer agreed. "We saw volume increases last year of 7-8%, but turnover up 14-15% thanks to price."
Market buoyancy led another to focus on margin, rather than ‘just chase turnover’. "We may have lost some sales as a result," they said, "but we were up 6% on budget in the first half and anticipate 15% by year end."
Demand across The board
Demand has been climbing in most hardwood end-use sectors, with construction recovery cited as one key market driver, particularly as it’s now ‘reaching maturity’, with new builds started since the upturn getting to second fix, where hardwood is more likely to be used. Strengthening general joinery, especially door making, and repair and improvement sectors, provided a further boost.
"We’ve also seen an upturn in the conservatory and kitchen market," said an importer. "It’s down to consumer confidence. Wages are now rising, people have more money in their pocket and are more willing to spend it, including on bigger ticket items."
The pick up in manufacturing, said an importer distributor, was also reflected in demand for machined products. "Mill work is a bellwether for joinery and furniture making," they said. "When it’s quiet, producers take processing in-house. When it’s busy, they come to us for capacity and flexibility. All our plants have good order books and we’re adding machines." The picture on the supply side is more mixed. There has been some good news, from both temperate and tropical sources.
In Africa, for instance, the logjam at the regional hardwood port of Douala, Cameroon is lifting. Estimates of the timber build up at its worst were up to 500,000m3 thanks to a crane breakdown, and disputes between the authorities and the port operators and dredger. Now Chinese companies have moved in on both stevedoring and dredging. Chinabound cargoes are said to be getting priority, but traffic overall has improved.
"We’ve also seen African mills bring more production mothballed in the recession back online," said an importer.
Similarly US mills are upping capacity. "Investment was fleeing US timber, and switching to mining and fracking in forestlands instead. But now confidence is returning," said an importer. "For instance last year we saw Baillie Lumber add capacity by buying AHI, and investor Little John acquire Northwest Hardwoods."
Less good news is that the production pick up still lags demand, bringing price pressure, delivery delays and fears of market ‘gaps’. "Producers can’t make up six years of output cuts overnight," said an importer. "So, while shortages aren’t a big issue yet, for the first time since the credit crunch, we are struggling to get some core products."
Species sales trends
In terms of species trends, while oak (US and European) and sapele remain out front, strong growth is reported in demand for US walnut and also ash, regardless of the unstoppable Emerald ash borer infestation. "US Ash demand remains firm, with no significant supply issues related to the borer," said an importer, ‘and there’s always European if we get shortages."
US tulipwood, as a general joinery paint grade, was also reported to be strongly ahead in 2014 and maple and cherry made progress, albeit from low levels. One importer has increased maple orders from one container a quarter, to one or two a month.
In the battle of the oaks, US remains dominant. But the relative exchange trends of dollar and euro against the pound have made European increasingly competitive, although some now see signs of a supply squeeze. "That could be down to China buying more European oak due to US red oak price rises,’ said an importer. "And Italian Croatian oak suppliers are also having supply issues as the Croatians are processing more themselves." In tropical, sipo and iroko are in firm demand, as are meranti and yellow balau. But two species reported on the decline were framire/idigbo and ipe, both at least in part due to legality issues.
Ipe Issues
Ipe hit the headlines last year when Saint- Gobain Building Distribution put stocks in quarantine pending investigations as to whether it breached the EU Timber Regulation (which ultimately, it is reported, gave the all clear). This followed a Greenpeace report claiming widespread illegal logging in the ipe producing state of Pará, Brazil. Subsequently other importers switched to FSC ipe only and there have also been moves to promote substitutes, notably modified Accoya and Kebony.
Framire, largely from Ivory Coast, has also fallen foul of the EUTR, with importers struggling to find suppliers up to due diligence requirements.
"It’s also been over-logged so you can’t get the specifications," said an importer. "You could get 30% 4m and over. Now you struggle for 20%. It may just fade from the market."
Alternatives are also being put forward here too, with one importer trialling movingue with framire customers. Meanwhile slow progress is reported in the industry’s long-term aim to bring a wider spread of tropical hardwoods to market, but there are indications that this could change. Formed in 2013 and backed by some UK companies, the European Sustainable Tropical Timber Coalition, is putting a range of tools and strategies in place to boost sales of lesser known varieties, including a dedicated website (www.houtdatabase – currently in Dutch, but with an English version underway).
Eutr opens new species door
The EUTR is also expected to give this direction added impetus. The Regulation is now accepted as an integral element of hardwood sector business – although still a major administrative and cost burden, with one company putting its annual EUTR management spend at £100,000. But it is agreed to have narrowed the supply base, with buyers axing certain producers.
"That creates pressure to buy more species, including lesser-knowns, from the pool of suppliers we have left," said an importer, adding that they were introducing two potential "market changers" this year. Whether engineered tropical hardwoods are set to gain share too is a matter of debate. "We don’t see it," said one importer.
"Buying laminated European oak is a no brainer, because thinner dimensions of the solid wood are cheaper, so laminated still costs less than a thicker solid piece. But with sapele, for instance, there’s no differential between thicknesses, so laminated is at a price disadvantage."
But another company said that laminated hardwoods, notably sapele, meranti and eucalyptus, had become its ‘secret weapon’. "Yield and lower processing cost makes them cost effective in the long run. They also enable producers to use shorts and narrows that would otherwise sit in their warehouse being eaten by termites."
The successful FSC reaudit of Danzer’s 1.16 million hectares of certified forest in Congo Brazzaville was viewed as a major positive for hardwood’s wider environmental reputation. But generally, little advance is reported in certified timber sales.
"In fact, there’s a belief that the EUTR is reducing demand, as customers are happy with wood that meets it legality requirements, and see less need for certification, unless they’re supplying public projects," said an importer. "We buy 90% certified, but it’s only specified by 10% of customers."
Looking ahead, the hardwood sector sees some causes for concern; the stronger dollar adding price pressure to US hardwoods, Eurozone problems potentially undermining consumer confidence, economic uncertainty around the UK election, and continuing slow output recovery from both temperate and tropical producers. But the broad consensus is that recent market momentum will continue.
"Customers have strong order books, housing consents have hit the significant 200,000 mark, and low fuel prices should boost consumer spending," said an importer. "So, bar the unforeseen, we’re expecting 2015 to be a reasonable year
