Summary
• The north African market has slowed recently.
• Swedish producers are turning more to the UK as their home market quietens.
• UK carcassing prices have risen in response to higher logistics costs.
• As sterling strengthens demand for UK timber could slow.
• UK imports of Russian material have been limited.
Softwood sawmillers are still being squeezed between high log prices on the one hand and resistance from buyers to price increases on the other. Shippers have found that rising demand from new markets such as north Africa has slowed recently, and a willingness to continue paying higher prices has given way to a more established market level, albeit above the traditional European market.
All markets are currently fairly quiet and whitewood availability is becoming easier from the importers’ perspective. Some have commented that Swedish producers are showing an increased level of interest in the UK market because home markets in the Nordic region have slowed down. There are worries that there may be too much stock for current demand, but shippers who are not desperate to generate cash are unlikely to consider any price cuts, as the underlying threat of log shortages will remain a permanent feature.
What has concerned the industry is the level of Swedish production in the south, which is higher than the market requires. During January and February, Swedish sawn whitewood sales to the UK increased by over 8% compared to the same period last year, and exports to all markets exceeded the level in 2011 by 19%. Despite a rise in the volume of exports, revenue in krona dropped by 6% – and this statistic demonstrates the fact that sawmills have little room to cut prices and stay in business in the long term.
Production cuts possible
In response to current market conditions, some sawmills are already reviewing their position with a view to cutting production volumes to improve prices and regain profitability.
One of the largest whitewood producers, Södra Timber, has announced a decision to extend holiday shutdowns at its Ramkvilla and Torsås sawmills by two months. This will begin in early June and last right through until the end of August, and will also be accompanied by a cut in shifts at the Långasjö mill. All the mills will remain open for shipments throughout the period, and the company will be watching the market closely during the lead-in through May.
These measures are designed to compensate for reduced demand and a current overcapacity in southern Sweden, a situation that is pushing sawmillers into a loss-making position.
In the UK, imported carcassing prices have risen between £3-5/m³ over the past eight weeks, but much of this can be attributed to logistical costs, and there are still further pressures in the pipeline from higher freight charges yet to manifest themselves. British softwood producers are reported to be extremely busy, with demand buoyed up by the seasonal increase in orders from the garden fencing and landscaping sector. Many mills are working to a four-week lead time, but in some cases this has extended to five to six weeks.
British timber
As home-grown delivery times are lengthening, agents feel there is a strong possibility that some buyers may switch orders to imported material, and whitewood supplies from Sweden or Latvia could be available within a shorter period of time, helping make up for shortages.
UK buyers have been using home-grown softwood as a shield from currency fluctuations, and because goods can be brought in on a just-in-time basis. This has made ordering simple for merchants, allowing them to keep stock levels trimmed to a minimum. Under current exchange rates, sterling has strengthened against the euro and has become more stable. With better currency rates and more imported timber available, buyers have less motivation to stick to British production.
One of Europe’s largest whitewood markets, Holland, has become quieter over the last month and distributors’ stock levels are said to be sufficient to match market demand for at least a month ahead. The fall in demand is spread across all sections of the Dutch market, from importers and merchants through to construction and DIY chains. Even the demand for pallet wood has fallen back, and an unexpected softening in the price of 22mm boards has taken the market by surprise as they were at a premium only weeks ago.
In contrast to the Swedish position where overproduction has yet to be addressed, Latvian sawmills are acutely tuned into their log supply issues. Following a reduction in harvesting by the state-owned forestry authority for this year, fibre costs are expected to remain high and sawlogs in short supply. With less volume to go around, shippers are already adopting a bullish stance and prices to all markets are expected to steadily increase.
North America
Across the Atlantic, softwood prices rose sharply during April and on the west coast of both the US and Canada stand at levels over 25% higher than last year. This latest trend may provide some confidence among European producers when looking towards the mutual markets in Japan and parts of Asia.
Prices have rallied particularly steeply in the last two weeks, taking lumber futures for delivery in May to an eight-month high on Friday, May 4. This is largely in reaction to a second major explosion and fire at a British Columbia sawmill within three months, which has created expectations of tighter supplies. The fatal accident happened on April 23 at Sinclar Group Forest Products’ Lakeland Mills Ltd, and has led to concerns about a possible combustible dust hazard associated with processing beetle-killed wood.
A directive order issued in response by safety watchdog WorkSafeBC requires all sawmills in the province to assess and address the hazard, and this has led to concerns that mills will halt production while sawdust is cleaned up. At the same time, a leaked report by British Columbia’s forests ministry has heightened wider concerns about the long-term raw material supply by suggesting that beetle-killed pine trees could become uneconomical to log within two years.
In the joinery grade market, redwood sales have been steady, with the smaller Swedish and Finnish producers obtaining improved prices. There are some larger forest products groups underselling in some areas due to a level of over-stocking.
Russian cargoes to the UK have been limited, with importers and distributors agreeing to take part redwood and part whitewood in order to get some volumes to sell. Under current conditions, more redwood is now becoming available and traders are seeing more offers including sideboards.
Redwood market
Redwood sales in the UK were steady during April and landed stocks are adequate enough to meet current demand. However, Swedish and Finnish exports to north Africa and the Middle East have created shortages in certain specifications taking out volumes in fifth grade.
During January, Finnish exports of sawn redwood within Europe rose by approximately 4%, but to non-European markets including Japan, volumes increased by more than 30%. The UK still remains an important redwood market for the Finns, but Egypt, Algeria, and Japan are larger customers.
In the same period, Swedish redwood exports increased more significantly inside Europe, gaining over 20% against January 2011. Shipments to other buying nations increased more than 25%, and the UK remained the second largest customer behind Egypt.
Redwood supply may increase to European markets during July and August when the observance of Ramadan affects shipments into Alexandria, along the northern African coast and in the Middle East. Unless shippers in the Nordic countries and Russia increase exports to these areas during June to lower inventories, they may offer excess volumes on favourable terms and create a higher level of competition.
Looking forward, agents and importers share the opinion that the UK redwood market will continue on a steady course with prices remaining firm but without any significant rises. Whitewood markets are likely to become more volatile, and prices are expected to increase if production is controlled more tightly.
UK distributors warn that credit is still a problem, and insurance limits are being applied cautiously within the industry, especially where companies’ end-of-year results are weaker than last year. One importer said that getting payments from customers in the current climate has become difficult and is turning out to be worse than at any previous time in memory.
