The effects of last year’s import levels are still working their way through the system, several ports around the UK are still struggling with high volumes of softwood on the quayside and at the same time a number of importers are still holding excess stocks in their inventories. The high level of goods at the quayside is taking up space, causing shipping lines to delay the collection of new cargoes, some of which are needed to help balance current specifications.
A number of UK ports have converted to inventory-linked systems, which track the movement of timber packs and, most importantly, their time held at the quayside. This move has started applying pressure to importers to move goods more quickly as rental charges are starting to become widespread. Such charges raise the cost levels of unsold stock and can add significant increases, which affect importers’ profitability.
Softwood imports for the year 2021 were calculated to be in excess of 7.5 million m3, and compared with 2020 that means an extra 970,000m3 was landed. This figure was reached in spite of a marked seasonal slowdown in the last quarter of 2021 which did little to ameliorate what became a substantial over-stocking above demand, forcing the market price to weaken. With almost a million extra cubic metres of imports, the consumption figure for last year is now the most critical statistic as it could enable the trade to gauge how the market is likely to pan out in Q3 of this year.
Normal consumption in the UK averages around 9.75 million m3 with home-grown supply accounting for around 3.1 million m3 and the imported volume hitting approximately 6.65 million m3. The most recent verified figure for UK apparent consumption was for 2020 at 9,772,000m3 (UNECE COFFI 2021 report) when softwood imports were recorded at 6,677,000m3. If the demand in 2021 was on the high side of “normal” at say 10 million m3 with homegrown consumption at around 3.1 million m3, then imported consumption might have been 6.9 million m3. Based on that assumption, that would mean an excess supply of around 600,000m3. Many traders believe that the true consumption figure was at the lower end of normal and the excess was higher, with the fallout causing prices to remain stubbornly subdued to date.
With Russia’s invasion of Ukraine, the sanctions levelled by the UK, EU and partner countries have closed off raw material imports from Belarus and Russia. This now effectively means that sawmills, and in particular processing mills, in northern Europe and the Baltic states will need to procure that lost volume from other sources.
Both FSC and PEFC have withdrawn accreditation from producers in Belarus and Russia whose productions are now regarded as conflict timber and therefore off limits to bona-fide producers and importers. This situation has had a major impact on Baltic mills that relied on imports of pine and spruce from the two named countries, and it will particularly reduce volumes of 6m lengths in structural graded specifications that were available before the war.
Mills with their own saw lines can convert logs from their own country’s forestry such as in Latvia and Estonia, or they can seek imports from other areas such as Scandinavia. But mills that can only process pre-sawn dimensions will have to try to negotiate with local sawmills to avoid excessive handling costs.
Turning to the joinery, or quality-graded producers, the markets for traditionally-bracked unsorted and fifths and so on are tending to follow the trends of structural material. Nordic fifths are similar in price to C24 treated UC2, and both products have been fluctuating in a similar manner through the surges and declines of month-by-month demand.
Nordic shippers have shown more interest in the UK redwood market due to difficulties in logistics, especially where containers have been used on long distance routes. Shipments of break-bulk via liner services to British buyers are currently proving relatively straightforward by comparison, and the forward supply of redwood is reported to be adequate against projected demand.
Shipping services are generally becoming more difficult since many vessels operating through Russian owners have been vetoed by most countries, and refused entry to the ports. This has pushed up demand for shipping space. Timber is only one commodity vying for capacity against other products such as steel, aggregates and bulk goods including grain and fertiliser.
The demand for sea freight has inevitably pushed up shipping costs, but additional costs are being brought to bear by fuel bunker surcharges. As the price of oil has risen globally, the price of marine fuel has been rising sharply. Adjustments on freight invoices have already been levied with varying amounts depending on the journey, but 10% is a reasonable overall estimate.
Also, within the cost of logistics comes a sharp rise in road haulage where trailer delivery rates have advanced anywhere between 25-30%, adding further costs to deliveries to customers yards. These costs have also been mirrored abroad, as transport prices from the mills to shipping ports have risen due to fuel costs and wage inflation.
Although Ukraine is under invasion, there are still some wood products being produced on a reduced scale in rural areas. And with great difficulty, they are managing to reach outside ports.
Since studies were undertaken by the EU and various NGOs in 2017 and 2018, there has been a great deal of criticism over Ukraine forestry extraction, citing problems with illegal logging certificates.
In some cases corruption has been aimed at State forestry level, and some producers have found themselves frozen out of supply. However, there are producers applying modern due diligence to their purchases, which are made at state auctions, and they will only buy where logs are sold in a fair and transparent manner. There are mills owned by European and British investors with facilities to dry, grade, saw and plane softwood in compliance with high-level environmental policies. They are committed to a robust chain of custody and will not accept any material where doubt exists over its legality.
With the high level of wartime risk in transporting processed timber by road, haulage costs from Ukraine into neighbouring countries have more than doubled with some rising by more than 132%. When shipping costs are added, this makes the materials costly so producers tend to focus on higher value-added products such as furniture components or selected pine specifications, where careful kiln drying is applied to planed and profiled sections.
Back in the UK, sterling went into a sudden decline. Dropping from a high of over €1.21/£1 in March to a level around €1.17/£1 in May, and from SEK13.1/£1 to SEK12.27/£1 within the same time frame. This represents a fall of 3.5% against the euro and 5.5% against the Swedish krona.
This comes in spite of an increase in interest rates which would normally strengthen sterling’s value on the currency markets.
Set by the Bank of England at 1%, it was seen as a cautionary measure to arrest inflation without choking the economy. However, economic forecasts of a possible recession ahead have “talked down” the value of sterling for the time being.
This background of rising costs has left the softwood industry in a state of flux where demand has been below expectation and it is difficult to pass increases down the supply chain. Competition between importers is fierce, as some try offering price reductions to keep stocks turning over and retain market share. It is only when shortages really start to bite, that the market might get back onto some form of “normal” footing.
