Not depressed, but downbeat probably best sums up prevailing market views in the UK hardwood trade.
“It’s challenging,” said one importer. “We’re still getting over the line each month budgetwise, but it’s at 11.55pm on the last day.”
The testing environment is put down to the state of the wider economy, plus the market hangover of two buoyant years fired by the pandemic home improvement boom.
“It’s been a roller coaster,” said another importer. “During the Covid crisis when people couldn’t travel, they bought that new kitchen and converted homes to live/work spaces. Now that work’s done, the money’s spent and consumers are facing inflation that may have come off its peak, but remains high. Plus we have the steepest interest rates for years to combat inflation. Householders are coming off fixed rate mortgages and wondering how they’ll pay food and energy bills.”
Latest economic forecasts are further denting market confidence, with the Bank of England predicting inflation won’t decrease to its target 2% until 2025 and KPMG that GDP growth will be just 0.4% in 2023 and 0.3% in 2024.
Another importer was more positive. They felt the market was starting to turn, but said the pick-up currently remained “gentle” and stocks on the ground were still too high.
“There is still residual wood from the high cost days to work through,” they said.
Another trader agreed and said the stock position was triggering price cutting.
“Cheap offers keep coming and going. Sapele has been a particularly tough sell recently, with stocks being liquidated at prices that don’t reflect cost.”
The wider UK construction industry slowdown is also, of course, a key contributor to the current hardwood trading climate, with the Construction Products Association forecasting output down 7% in 2023 and growth of just 0.7% next year.
“Reflecting the state of building, our staircase customers say they’re down 30- 40%,” said an importer-distributor. “Also as a consequence, merchant customers are down, even the big boys, with Travis Perkins issuing a profit warning. When merchants are quiet, we’re all quiet.”
Looking at supply and cost, the key US hardwood issue concerning businesses, following steep deflation last year, is the white oak price surge.
“The price of 8qtr is up around 75-80% this year, so we’re back to Covid levels, while 4qtr has risen 35-40%,” said an importer. “And it’s difficult to get hold of. White oak is 15% of the US hardwood forest, and everybody wants it. China seems to be turning to it more, and the US domestic market is strong. The American stave industry is also doing ridiculously well! At the same time, suppliers say there’s less coming out of the forest, particularly the higher grades the UK wants. And anything that’s remotely usable in the stave industry is being pulled.”
Importers say the market is also wary of following white oak prices up.
“During the pandemic, it wasn’t an issue as demand was brisk. Prices kept going up and customers kept buying,” said one. “Now we’ve got wood on the ground that is significantly cheaper than forward cost, but it’s still just dribbling out. The consequence, say US mills, is that European customers, including in the UK, are sitting on the fence and not committing. The trouble if we don’t commit is that we won’t have enough wood in Q1 2024.”
US walnut is also reported in tight supply, particularly higher grades, with prices up 10-15%.
US ash supply is said to be “under stress” due to the emerald ash borer infestation, but an importer said they could still get what they need and price is stable. Both US tulipwood and maple were reported as available, with prices steady and the same applied to cherry where one importer was actually seeing revived demand.
Importers are also buying more red oak. “It still lags way behind white, but some customers who switched to it in the pandemic due to the red/white price differential stuck with it,” said one.
African trade is characterised by “ridiculously late contracts”. Iroko and sipo are said to be “hard to find” and prices are firm, while framire, said one importer, has “virtually disappeared”.
Sapele prices are also firm despite sales slowdown. “There’s no sign producers are about to move on price, but if demand doesn’t rise, they may have to think again,” said an importer.
There are also reports of more uncertified sapele coming to market and undercutting certified, which may put added pressure on the latter’s price.
“Some people will trade in anything and uncertified is 15% cheaper than FSC,” said an importer-distributor. “Besides price, there’s a suspicion more of this timber is being shipped to Europe now due to implementation of stricter import controls under the EU Deforestation Regulation (EUDR) in 2025.”
There’s still only limited UK interest in secondary African species.
As Interholco reports in our tropical market focus, its laminated, finger-jointed products in lesser-used varieties, such as kosipo, bosse and wenge, are being widely taken up in Europe (see pp36-37).
“These engineered products, such as scantlings for windows and doors, appeal due to their stability and high yield and sell on technical characteristics rather than species name,” said Interholco’s Christophe Janssen. “But the UK tends to be more traditional on species and customers focus on these products’ higher initial price, despite the overall cost benefits.”
The prospect of Ghana finally starting to issue FLEGT licences next year for exports to the UK and EU is greeted as a positive, but not with huge excitement (see p40). Pending a bilateral FLEGT agreement between the UK and Ghana, Ghanaian licensed products are set to be exempt further due diligence under the UK Timber Regulation and accepted as legal and sustainable in government procurement policy. In the EU, however, while the licences will be accepted as proof of legality, they will not be given a green lane under the EUDR, which requires additional proof products are not linked to deforestation or forest degradation.
“The UK imports relatively low volumes from Ghana,” said an importer. “And in the EU, with the replacement of the EU Timber Regulation with the EUDR, they’re a bit late to the party.”
Asian supply is reported as “uneventful”.
“Freight rates are down to pre-Covid levels,” said an importer. “And prices of meranti drift up 5%, then down 5%. But for us it’s an increasingly fringe species. Sapele dominates general joinery demand.”
Storm damage in Croatian forests is reported to be disrupting oak harvest, with some Italian exporters saying they may not be able to replace certain items once stocks are gone. But currently European oak availability is improved.
“In the last couple of years, suppliers gave us half what we wanted and were take it or leave it on price,” said an importer. “Now we’re back to normal. We can get what we want, have a haggle and prices are down 2-3%.”
An importer-distributor said beech was in demand and supply tighter, with some customers consequently switching to tulipwood as a paint grade.
Grandis/eucalyptus sales are reported to be relatively healthy, particularly in engineered form, while availability of Accoya, following reduced supply during expansion work at producer Accsys Technologies’ Arnhem factory, is improving.
“We’re still 15% below where we want to be on supply, but we were 40% below,” said an importer-distributor.
Views vary on the prospective UK market impact of the EUDR. Some say they are not overly focused on it currently, others that it will inevitably have a knock on.
“Our European suppliers will be affected as it applies not just to timber and other commodities being placed on the EU market, but also being exported from it,” said an importer. “And if it adversely affects suppliers elsewhere, that may have fall-out. Counterintuitively, it may impact African suppliers less, as their export customers already require them to be belt and braces in terms of geolocation of timber origin, time of harvest and so on, which the EUDR requires. But for the US, with the fragmentation of forest ownership, providing geolocation information is a challenge.”
An importer-distributor felt the UK would ultimately align import regulations with the EUDR, but their hope was that the latter and any new UK rules would ultimately differentiate between sources of supply.
“For some tropical sources, more challenging regulation is a good thing, but the disruption it could cause in the US, a demonstrably sustainable source of hardwood, is unnecessary,” they said. “I need mills to tell me the exact plot in the Allegheny my wood comes from? Seriously?”
Another importer said UK timber traders would also be impacted if manufacturer customers sold to the EU. “They will need us to provide the EUDR information,” they said.
On the wider outlook, an importerdistributor felt the market had been through the worst and was becoming more stable, although some customers remained “reluctant to commit, in case a product is cheaper next week”.
Another predicted, with little prospect of significant economic growth, the industry would “cut its cloth accordingly”.
An importer said they were currently getting paid on time, but reported anecdotal evidence of rising bad debt.
“So the outlook is uncertain,” they said. “But we’ve got to remain proactive and keep buying to have something to sell. You just take a big gulp and hope the market cooperates when the wood arrives.”
