Last year’s mood of cautious optimism continues throughout the British-grown wood chain, qualified with some notable events.

In the year to March 2006, Forest Enterprise‘s conifer standing sales price index showed an increase of 13.6%, although, in the final six months of that period, softwood sawlog prices fell 6%. Other sources suggest demand for softwood logs picked up markedly in the second half of this year as imports of sawn timber declined and order books filled up.

A number of major sawmills are refurbishing or planning to rebuild and increase capacity and uncertainty and cost of supply, as well as energy prices, are growing issues. This is because processors are increasingly having to deal with numerous private growers as the Forestry Commission becomes proportionally less significant. Many private growers are more price sensitive, though the forest management companies in many ways resemble co-operatives in their marketing of timber. Some processors may need convincing that the private sector will provide the additional volumes required.

The processors report full order books and “while at the beginning of the year, prospects for UK softwood producers seemed uncertain, there has been increasing demand for sawn softwood products”, according to the UK Forest Products Association (UKFPA). “Prospects for the rest of the year look very encouraging; however, UK sawmillers have incurred substantial cost increases over the past two years… which have so far been under-recovered.”

Small roundwood demand has largely remained static, although as Norbord has closed one line at South Molton, Devon, it is taking 20% less and it’s a similar situation at Cowie. However, Norbord is exporting some roundwood to its European OSB plants.

In October, Beacon Forestry reported “a steady and continuing upturn in demand for round timber, even in the south of England. A shortage of softwood sawlogs in the east of England has been the case for at least six months and for Wales over the past year. Demand in Scotland has been very strong for the past two years and is showing no sign of changing’.”

Growers have seen some firming of prices, but Beacon Forestry called for sawmillers to pay more for logs when the price of imported Russian and Swedish, low-grade sawn timber rose by 20-30% this year.

In response, James Jones & Sons cited escalating costs for electricity and kiln fuel, employment, raw material and transport, all of which were pushing up sawn timber prices, but not sawmillers’ profits. In addition, it had been affected by the closure of Norbord’s MDF2 line at Cowie, which caused an immediate reduction of £1 per tonne in the price for residues, with more reductions expected. This was in addition to a 25% reduction of peeled chip intake, putting an effective ceiling on sawmill production due to the distance from alternative markets. “The combined impact for a typical construction grade and pallet grade production line within our group was to reduce our operating margin by £6.85 per sawn m3, and £3.85 respectively,” said the sawmiller.

Climate change

ConFor believes the British-grown timber sector can benefit from the climate change debate. It is supporting the Forest Carbon initiative, whereby carbon rights on new planting can be sold to businesses to offset carbon emissions: a welcome new source of income.

In Scotland, £6m from the climate change programme is also supporting forestry, mainly new planting, and the recent Stern Report on the economics of climate change gives valuable impetus to ConFor’s representational work.

The climate change debate is also driving greater use of woodfuel and material substitution.

The former is finally reinvigorating woodland management by providing markets for low-grade hardwood and softwood, including brash, with contractors gearing up and supply groups establishing. The Forestry Commission in England (FCE) has prepared a strategy for delivering 2 million additional tonnes of woodfuel from England’s woodlands by 2020.

However, the shortage of skilled and equipped contractors may be a barrier and, as Tilhill warned, “the fragile nature of the harvesting and haulage resource, which is feeling the pressure as demand increases, and legislative and recruitment difficulties put all these resources under strain”. There is some evidence that enterprises will respond, but the FCE action plan will be crucial in this respect.

While E.ON at Lockerbie and Sembcorp at Teesside, both biomass-fired electricity generators, are expected to go live in 2007, the potentially huge demand from co-

firers does not seem to be materialising and growers welcomed the start of the combined heat and power plant at UPM Shotton in August. These three facilities together will require more than 1 million tonnes of material.

The closure of St Regis Paper was a serious blow to the growing sector. It was taking around 200,000 tonnes of low-grade hardwoods annually, facilitating broadleaved woodland management. The England Forest Industries Partnership‘s impact study has indicated how woodfuel could take up some slack and the woodfuel strategy, if supported as expected, will be welcome mitigation.

Demand for oak logs, especially for fencing, beam and planking grades, is strong, but most hardwoods are sought after – for example, Chantler Timber wants to buy £1m of hardwood this winter and has appealed for supplies. One theory for the shortage is that applications for felling licences and re-stocking proposals, plus certification, are too daunting for the occasional seller, although many timber buyers offer help. Hardwood prices are rising in Europe, providing real opportunity for domestic growers who have long complained about poor prices. “While sawmills using domestic hardwoods continue to reduce in number, the survivors appear to be thriving, diversifying and adding value to their products,” reported the UKFPA.

Outside influences

There are both positive and negative factors in sight and the sector will be influenced by events abroad, such as Canadian mill closures and China’s demand for industrial wood (estimated by the WWF to rise by at least 33% in the next five years). Other factors are likely to be Russia’s increasing levy on roundwood exports and other supply issues in Scandinavia and the Baltics, combined with Asian demand, causing roundwood price increases; and timber processing shifting from Europe to South America and Asia.

Back at home, Forscot‘s mega-mill plans in north Scotland continue, albeit more slowly than intended, and Balcas, having successfully converted its Enniskillen sawmill to woodfuel, is to set up a pelletising plant at Invergordon in Scotland (p4). Highlands and Islands Enterprise have just announced it will provide £5.5m towards the total project costs of the latter.

Processing investment continues, largely on the strength of increasing timber harvesting, but the new UK softwood supply forecast predicts lower volumes compared with the previous report, meaning that supplies could be tighter than expected.

The continuing growth of timber frame construction is good news, despite the fact that it uses mostly imported timber. Government policy increasingly supports it, leading to greater generic promotion of timber.

In light of developments and ConFor’s own commitment to timber promotion and market development through initiatives such as Wood for Good, and Wood for Gold, which promotes the use of wood in London’s “sustainable” Olympic, the outlook is promising for everyone in the domestic forest industries.