As the last vestiges of wind-thrown material have been cleared through the Baltic sawmills, log prices have returned to the high point reached prior to last year’s storms.
With fibre costs escalating, the mills need to achieve increased carcassing prices sooner rather than later. Current levels circulating within the UK are holding the market back, and the Baltic mills are determined to improve their return.
Competition from Sweden is also another factor affecting the market; freight rates from Swedish ports are generally cheaper than those from the Baltics, and the differential on some routes can be as much as €10/m3. This bears down more heavily on the dry-graded market as the Swedes only produce limited volumes of unseasoned wood. There is also a limit to the volume of unseasoned Russian whitewood available to the UK market, so there is more of a possibility that the Baltic producers may achieve a price increase for unseasoned goods.
Although many traders have said they believe there is a trend towards kiln-dried timber, the volumes of green timber standing at the quayside are still greater than those that have been shipped dry.
Looking ahead, agents are reporting difficulties in obtaining offers from Latvia against forward enquiries. The reason is attributed to the fact that shippers are holding back from making commitments, in the hope that either the UK market will improve, or other markets will pay more. Where the mills have made offers, they are quite clearly rejecting any counter proposals on price from buyers, and are taking a firm stance by necessity. Whitewood prices have already increased by an average of €4/m3 in other European markets such as the Netherlands, and the US is paying better rates for CLS. There is also a shortage of 22mm whitewood boards, particularly in the lower grades, which is now commanding an extra premium, and 16x75mm HT appears to be sold out by all producers.
In the UK, however, prices are unlikely to improve in the short term because there are such heavy volumes of stock already landed on the quayside. Selling prices amongst importers have been a disappointment, and are hardly reflective of the potential rise in replacement costs. Uncertainties in the forward market, combined with the high levels of landed stock, have induced many traders to return to just in time buying policies. This has in turn given a sales boost to the terminal operators who have suitable ex-stock specifications on the quayside.
Supply levels
Meanwhile, further up the supply chain, there is no evidence that oversupply might hit the market at a later stage. Overlying volumes at the port of Riga are on the low side, and some shipping lines are even struggling to pick up enough volume to fill vessel space. The -30oC temperature in parts of northern Europe could have an effect on sailings over the coming weeks if ice begins to form in the Baltic ports, but so far no serious problems have been reported. However, the cold weather has slowed production down in the Baltic region, and some mills have suspended all operations until conditions improve. As a result of these factors, there are no large unsold volumes in the pipeline; if anything, some contracts may end up running late.
January trading figures have proved erratic amongst UK importers: while some have increased their sales over the same period last year, others have reported weak demand and poor turnover. This mixed view of the market is creating an air of caution amongst importers and merchants, and is likely to hold the forward market back for longer than last year.
The rise in sales of planed and regularised carcassing in the merchant sector has proved to be a success for the Baltic mills anxious to add any value they can to the basic sawn product. Although other producers are also offering the product, Baltic shippers are retaining a large slice of the volume sold. The regularised market still contains the anomaly of differing finished sizes from different mills, which end users still find confusing as they shop between the competing stockists.
While contracts for treated landscaping timber are currently being placed, producers have commented that agreements for decking are less forthcoming than for the same period last year. Several contacts commented that buyers are slow to market, but this time around they will find shortages in both 32mm and 38mm sawfalling redwood due to demand from other markets.
Profit margins
One common factor is the impact on profit margins caused by rising costs. None of the increases generated by road haulage and gas prices for heating has yet been successfully passed down the line. When the price of softwood begins to rise in addition to these costs, sellers will face a greater problem in passing on the costs all in one go.
To summarise, the large stocks being sold off in the UK are shielding buyers from the price increases Baltic shippers need to stay afloat. Swedish producers are enjoying more favourable freight rates (and currency exchanges) than their Baltic counterparts, but they are also unhappy with UK price levels. The attractions offered from other whitewood markets will increase the determination of shippers to hold firm against unrealistic offers.
