Summary
¦ Hardwood sales are hand to mouth and supply trends difficult to read.
¦ Spot and replacement prices are 10-15% out of balance.
¦ American white and European oak remain top sellers.
¦ Among tropical species, most traders report sapele performing best.
¦ The UK?has sent back 17 consignments of American ash for breaching EU measures to keep out emerald ash borer infestation.
The hardwood business is hardly going to finish the year with a bang, but it’s not going out with a whimper either. At least that’s the predominant market view.
It’s clearly remained highly competitive but, while some in the trade report sales tailing off in recent weeks, in one case sharply, the majority verdict seems to be that it is still in recovery. Business hasn’t hit great heights; “reasonable” and “satisfactory” are as far as traders push the adjectives. But, as one said, “the feedback from customers is that their glass is now half full, rather than half empty”.
Undoubtedly the short-termism of the market has remained a serious issue. It’s all about buying little, often and expecting deliveries yesterday.
“People are very nervous about holding stocks,” said a Continental-based trader. “That’s good for us, as we’re committed to being a major, diversified stockholder, but if the situation doesn’t change longer term, there could be problems. In particular others, besides companies like ours, need to stock specialities, because these are not just a phone call away. The UK, in particular, seems to be buying last minute and that could create difficulties as demand recovers elsewhere in Europe, which it is now doing.”
A UK trader took a similar line. “We’re benefiting from a strategic decision to maintain stocks, but the effect of general destocking elsewhere could be that only standard items will be readily available,” he said.
Fishing for the best deal
Traders have also been underwhelmed by 2010 price improvements. One distributor described prices overall as “slightly firmer”, while another reported “modest inflation”, but persuading customers to pay more is clearly still an uphill task.
“They’re shopping around for the best deal more than ever and we’re getting up to 30 email enquiries a day that come to nothing,” said an international trader. “Price is all that matters, until delivery, of course, then quality becomes the issue!”
Unpredictability of supply has added to pricing problems. “It’s become more difficult to read, as mills bring mothballed capacity back on stream,” said an importer. “You don’t know how much to bring into your pipeline and at what price.”
Traders offloading existing stock was another complication.
“Given our recent sales levels and the amount of production taken out in the downturn, we’ve been expecting sapele prices to rise in particular,” said an importer/ distributor. “But, just when you think it will happen, a cliff of wood comes from somewhere. There’s still clearly a lot of old stock out there.”
As a result of these various factors, hardwood spot prices are now reported out of kilter with replacement by 10-15%.
But despite being caught in this price squeeze, said the importer/distributor, like most other traders he was happier with demand levels through 2010.
“To say sales have been buoyant would be over-egging it, but they’ve been better than 2009 and more stable, especially since the summer.”
Demand from joinery producers had shown particular improvement. “They seemed to keep reasonably busy through the recession thanks to RMI work,” he said. “Now they’re reporting increased sales into new build too.”
A fellow distributor stressed that the pick-up in demand he’d seen since the summer was relative. “We’ve all got used to operating at lower levels, so any improvement is quickly apparent,” he said.
He thought the more recent upturn might “involve an element of pre-VAT-increase buying” too. But he acknowledged an “underlying steady improvement in demand from the building sector”.
A merchant also reported increased activity in shopfitting. “With better than expected GDP figures and rising consumer spending, although it slowed in the last quarter, retailers are going ahead on deferred projects,” he said.
It may only benefit a restricted pool of suppliers, but London Olympics developments are also reaching the stage where they need hardwood. One merchant, for instance, recently supplied timber for the Media Centre doorsets.
The UK’s top-performing temperate species in 2010 remained American white and European oak. American and European walnut have remained strong for flooring and furniture, as has tulipwood for internal joinery.
Tropical timbers
In tropical timber the picture is less clear. A couple of traders said sapele sales were down, iroko up, but most made sapele the winner.
“It depends on your customer base, but for us sapele has always been resilient and recently we’ve sold a chunk load,” said a merchant/importer.
At the same time, traders reported an increase in interest in previously lesser used species such as idigbo, framire, massaranduba, angelique and tigerwood.
“Specifiers are looking for substitutes for species that have become too commonplace, scarce or expensive,” said an international trader. “But it’s also due to their choosing on performance rather than the particular species.”
Other market losers, say traders, have been cherry, maple and meranti, while American red oak is also still failing to make headway.
“In clears, we’ve also seen cedar losing out to Siberian larch,” said a Continental trader. “It’s durability Class 1 and half the price.”
Emerald ash borer impact
A big topic of conversation in ash has been the emerald ash borer infestation in North America. Under EU phytosanitary rules, American and Canadian ash must come from non-infested forest and have all round edges removed and, to date, UK Forestry Commission inspectors are reported to have rejected 17 consignments for breaching the rules. One importer said the infestation is also now triggering approaches from European ash suppliers offering their wood as an alternative.
“We already buy Baltic ash,” he said. “But recently we’ve heard from suppliers across Europe, who are probably not too unhappy about EU ash borer phytosanitary restrictions!”
Having said that, he added, there hasn’t yet been widespread substitution. In fact, several traders said that American ash has continued to be one of their stronger species, bearing out American Hardwood Export Council reports that, while exports to the UK are down slightly this year, it remains Europe’s biggest market for the timber.
“Things may change if infested timber gets into the market,” said a merchant/importer. “But currently it doesn’t seem to be a sales barrier.”
Another topic of hardwood trade conversation is the new European anti-illegal timber legislation, now two years from implementation. This will make it a criminal offence to import wood into the EU without exercising ‘due diligence’ risk to ensure it’s legally sourced. Some say the market is still generally ignorant of the implications or, as one agent said, “more concerned about surviving recession”. But others maintain the impending legislation is raising awareness of the issues and boosting demand for third-party certified legal and sustainable timber, albeit not customers’ willingness to pay a premium for it.
Most traders also seem to back the new rules. “They’re needed for the sake of the forest and to ensure we’re all competing on a level playing field,” said an importer/distributor. “And I’m not impressed with the debate in some quarters that we should lobby to ensure the penalties aren’t too severe. That’s not the conversation we should be having.”
One concern is that the growing emphasis on certified legality and sustainability will restrict EU access for US hardwoods, given the complexities of wholesale certification in America created by its fragmented forest ownership. A merchant, however, thought this wouldn’t be the case.
“US timber is widely perceived as legal and sustainable so I don’t think the EU legislation will be a barrier,” he said. “The Americans also have breadth of specification and, in key species, notably oak, price in their favour. For instance, FAS American uncertified white oak is £690/m³ compared with FSC-certified European prime at £1,100. Some specifiers may insist on the European regardless, but price will help convince others that US environmental credentials are good enough! And, of course, there is some certified US hardwood available too, with FSC white oak currently £750/m³.”
The year ahead
Looking ahead to 2011, several traders forecast slight price weakening, notably in American hardwoods, due to slow domestic demand. Having remained firm since the sharp rises at the start of 2010, freight rates are also forecast to dip early next year.
As far as sales are concerned, one agent/ importer expected 2011 to be “a bitch of a year” with government spending cuts leading to “a huge chunk of business going missing from the public sector”. But the broader consensus is that, after an uncertain few months, it will be on a par with 2010.
“From now to February/March is a quiet time of year and that’s being compounded by concerns over the VAT increase, but I don’t think this will cause an extended dip,” said a merchant/importer. “There’s also a lot of talk about spending cuts, but they’re feeding in over several years and, even longer term, I don’t think they’ll impact strongly on construction.”
Another trader pointed out that demand for hardwood for 2012 Olympics projects should also pick up next year.
“We should see an upturn from hospitality and retail sectors too, especially in London, as hotels and shops refurbish to attract Olympics custom,” he said.
A merchant/importer forecast that business in 2011 “isn’t about to explode, but won’t implode either”, while an agent said he’d be happy with a repeat of 2010. “We hit budget and made some money and, in today’s climate, that’s good enough,” he said. “So if someone put a piece of paper in front of me saying I could have this year over again, I’d sign it.”
