Summary
• There are high volumes of landed stock at UK terminals.
• In the redwood market, there are some gaps in the 19 and 25mm sideboard specifications.
• Russian redwood prices are around 15% below the high of March 2007.
• Russia’s log export tax could soon affect the roundwood trade with China.
The general downturn in trade has made it difficult for agents to fill vessel space from Russia. Importers are reluctant to place further contracts for full cargoes due to high volumes of landed stocks held at the terminals and, until their inventory levels drop significantly, they are avoiding forward commitments.
In the redwood market, some gaps are appearing in 19 and 25mm sideboard specifications, and these will need to be replaced in the near future. But importers are sitting on high stocks of middle-cut 50mm and this has made them reluctant to buy the normal fair spread of sizes contained in Russian specifications just to close a few gaps in their stocks. If they do so, they risk receiving additional volumes in the dimensions that have already accumulated, at a time when turnover is slowing down.
The UK has been deluged by another wet summer, causing the decking market to slump dramatically. Some merchants have recorded a drop in sales of more than 75% and, as a result of the general downturn, importers and shippers alike have substantial stocks of 32/38mm x 125/150mm decking sizes, with little hope of clearing them until at least February next year. This is a further reason why importers are resisting buying general cargoes that would include these dimensions.
Price strategy
While Russian wood prices have dropped within the UK due to falling demand, importers have resisted the urge to slash prices indiscriminately in the knowledge that replacement costs are more likely to rise than fall. Increased freight costs combined with a drop in sterling’s value are likely to reverse the effect of any reductions in export prices made by shippers.
Russian redwood prices in the UK are around 15% below the high point of March 2007. Yet the current level is still around 14% above the average UK selling price over the past 10 years – evidence that some long-term improvement has been maintained.
In the whitewood market, the trend towards kiln-dried wood, as opposed to unseasoned, has continued and there are signs that further investments in grading lines will increase the availability of strength-graded supplies. But the uncertainty over current demand has induced some producers to offer their productions through to November at competitive prices in firm currency.
In terms of ongoing production, the situation regarding log supplies at Russian sawmills is less clear than expected.
On one hand, exports of coniferous roundwood are expected to drop by more than 42% this year against 2007, and that should leave an additional 8 million m³ for domestic processing. This factor combines with predictions of an increase of almost 9% in the export volume of sawn softwood to just under 18.5 million m³ and indicates that a steady level of production is anticipated. If demand for Russian production falters to any great extent, then there should be an oversupply of logs somewhere in the system.
On the other hand, northern mills are reported to be short of logs, and sawing curtailments may be implemented as early as November if the situation does not improve.
Rising costs
Production and transport costs are rising, and as the mills need sufficient returns to cover these costs, they are likely to try to increase selling prices to compensate if volumes fall. But this will be difficult to achieve if competition from Scandinavia increases.
Reports on log pricing within the Russian Federation indicate regional variations between Archangel, the St Petersburg region, and Siberia. Overall, prices fell during the first quarter, then recovered marginally in April. Forward predictions indicated that prices in the west and north-west would increase, but would remain weaker in Siberia. Some analysts now expect a fall in all regions, with prices remaining lower but stable in 2009.
The Russian government’s graduated tax on log exports is now threatening to affect the roundwood trade with China, in addition to the impact it is having on Finland, Sweden and the Baltic states. As a result, forest growers in British Columbia have recently received approaches from Chinese buyers, which they hope will translate into contracts in the near future. This would provide a much-needed shot in the arm for west coast Canadian forestry enterprises suffering from a downturn in demand due to the poor economic situation in the US.
In sawn timber markets, the most likely course of action for importers is to buy more from Nordic shippers in regular but smaller volumes while demand remains suppressed. This will enable them to keep stocks topped up and ensure their inventories are kept under tighter control. Prices of Scandinavian 5th redwood are currently comparable with Russian 4th grade, so buyers are finding it to be a cost-effective strategy.
