Summary
• Importers are struggling to find redwood shipments.
• Many Russian sawmills are short of logs.
• Restrictions on credit insurance continue to cause problems.
• The plywood sector has increased demand for Russian birch.
Exports from Russian sawmills are patchy to say the least, and terminal operators and importers are struggling to find shipments of redwood. This has caused depletion of stocks, and large gaps are appearing in fourth and unsorted specifications.
Many sawmills are short of log supplies, particularly in the north of Russia, and in some cases they do not have the funds to purchase fresh stocks, leaving sawing lines idle.
In the Archangel region, sawn softwood production levels have fallen due to poor weather hampering harvesting operations throughout August. As well as shortages in pine, most supplies of whitewood received in the first half of the year have been used up, and it seems unlikely that production will reach a satisfactory level for some time unless dry conditions prevail in October.
Tight supply
Although some buyers switched from redwood to spruce earlier in the year, under current circumstances they are finding that supply in both species is equally difficult and are turning to other countries. Where possible, importers have supplemented their inventories with Scandinavian product, but these volumes are not fully compensating for the shortage of Russian softwood.
Taking an overall view of landed stocks in the UK, Swedish mills are now rated as the dominant supplier. One contact estimated that the Swedes had now taken over 45% of the UK softwood market, and noted a significant reduction of imports from German sawmills.
During the first half of 2009, German exports to the UK fell by just under 60% compared to the same period last year. Although exports to North Africa and the Middle East rose dramatically, the overall volume of Germany’s sawn softwood exports fell 25%.
Those importers in the fortunate position of having some regularity in their Russian cargoes, face increasing difficulties in selling the timber because of continued restrictions on credit insurance. In spite of reduced cover on their customers, traders are being asked to pay ever-increasing premiums, to the point where the industry feels that credit insurance in its present form is not working.
Redwood prices rise
As redwood has become scarce, so prices have been steadily climbing. This has in turn reduced the physical volume of wood that can be sold to a customer within their designated credit limit. Also, for every £10/m³ more that the importer pays the shipper, an extra £30-40,000 has to be found by the importer to fund each shipment from the point of arrival right through ongoing stockholding costs.
These problems are arising at a time of erratic demand, and although prices have been increasing, stiff competition exists between those importers who have the stock that complies with a customer’s enquiry.
UK traders reported a buoyant sales period in July but business nosedived in August, and current indicators from the merchanting sector show that September’s sales will not be strong enough to compensate. As confidence is still lacking, merchants are operating a just-in-time policy of short-term buying, and keeping stocks at the lowest level possible.
In the plywood market there has been an upturn in demand for Russian birch from the Far East and mainland Europe. German consumption has improved notably over the past few months and, although end user demand is still uncertain in the UK, several distributors are restocking. The domestic Russian market has also improved and, on the back of a strengthening general market, prices have been steadily increasing. The upswing in demand has stretched lead periods from three or four weeks to almost two months. Mills are reluctant to accept contracts too far in advance, but report strong forward business and most output is sold for the next four months.
Plywood prices
Birch plywood prices rose in July and August, but buyers are determined not to become short of stocks, and have accepted the rises. Demand for value-added boards such as mesh-faced plywood has also strengthened.
Some Russian plywood producers are short of birch logs because harvesting companies wound down operations when a slump in demand hit hardest at the beginning of the year. Now they are trying to recruit to cope with demand, but this is a slow process.
In the wake of uncertain global economic trends, the Russian government is considering postponing the full force of the log export tax which stands at €15/m³ in the round. The tax was due to hit €50/m³ in January this year, but the rise has already been postponed until 2010 and now is unlikely to happen until 2011.
The levy is aimed at logs over 150mm and was primarily designed to encourage corporations to invest inside Russia in production units such as sawmills and sheet material plants. Now the importance of export revenue is being reassessed, and the effects on important trading partners such as Finland.
The outlook for the fourth quarter is one of shortages creating a supply-driven market. Although importers are buying forward, there is a constant fear that a further weakening in demand could induce some shippers to drop prices, and nobody wants to get caught with overpriced material as they did in 2008.
