The background to this change could be described as almost ‘historic’ when compared with conditions that have prevailed over the past decade. A combination of escalating log prices, increased running costs and transport charges has resulted in serious corporate losses, taking some shippers to the brink. Now, due to heavy cuts in production and an acceleration in global demand, the sawmills are able to raise prices accordingly.

Along most stages of the supply chain, traders have welcomed the effects from this new turn of events. Landed stock values are appreciating, and the price of the product is becoming more reflective of the large investment the industry has spent on storage facilities, handling and processing. But the supply shortages could undermine turnover in the longer term, creating a negative effect on the performance of UK sales. With steadily growing demand from other countries, shippers are taking longer to respond to enquiries, and while this is the cause of a great deal of frustration amongst agents, it is also in danger of creating bad feeling amongst UK buyers.

It is not just commercial factors that are affecting the market; natural events have also had an impact. Storms created havoc through the forests of northern Europe last year, and now the rivers are at ultra-low levels following this winter’s big freeze-up.

Supplies from northern Russia will be affected: logs that are normally floated down stream to the sawmills cannot be transported in anything like the same volumes, so production in some areas has been reduced dramatically. One shipper in the Archangel region reported that there would be no improvement in the situation until August or September, leaving a substantial gap in production, which will add to the shortages.

Sawmillers have no doubt that prices will reach a peak at some point, but this will depend on production control rather than a fall in global demand. Although the UK is currently experiencing a period of mixed and fairly average demand, other European markets are extremely busy, and the emerging markets of China and the Middle East are predicted to continue to expand well into the foreseeable future. With these conditions as a backdrop, there is a unanimous opinion amongst shippers that the current trends will continue to the year-end.

To give some idea of the rate of change, UK importers have been experiencing a series of steadily increasing prices since January, which have amounted to over £20/m3 for redwood fifths, and there are general expectations that third-quarter prices will advance by another £5/m3. The more bullish traders are predicting even higher levels, to the point where the redwood increases might double by the end of November.

Some of the other markets have a further attraction to shippers, because they adopt a more flexible attitude towards quality. Several contacts have commented that the markets of North Africa and the Middle East are prepared to take the lower grades while at the same time paying better prices, in some cases accepting sixth quality at the equivalent price of fifths.

Comments made by UK importers over the last few years have indicated that some shippers have been grading redwood “down to the price”, in other words adjusting their bracking to improve the yields in each grade to counteract the poor returns from low prices. Unfortunately this has given rise to customer perceptions of wood “not being as good as it used to be”, higher percentages of rejects and the merchants being left with the residue to dispose of. Other shippers have broken the mould by developing speciality grades based on technical performance, and these have been welcomed by end users who have been prepared to pay a premium in order to get a dependable product that is fit for the purpose with little-to-no waste.

In the carcassing market, most UK importers have experienced an improvement in sales during this month, and price increases are slowly being passed on through the merchants to the end users. With increased costs in the pipeline, however, they need to double their efforts with immediate effect.

&#8220The price of the product is becoming more reflective of the large investment the industry has spent on storage facilities, handling and processing. But the supply shortages could undermine turnover in the longer term, creating a negative effect on the performance of UK sales.”

One Swedish exporter likened current trading conditions to the “wild west”, saying that prices were virtually out of control, and mills were looking for an extra SKr150 (£11/m3) for certain items in the third quarter.

Whitewood log supplies in Germany and the Baltic states are still tight, and prices are steadily rising. With restrictions being applied on Russian log exports, and the new taxes on harvesting in Finland, the price of raw fibre at the sawmills has only one direction to follow.

Demand for planed and regularised whitewood graded material is strengthening and could overtake the traditional sawn productions of 47mm and 75mm thickness. Although there are several different finished sizes on the market, the most enduring size appears to be minus 2mm on the thickness and minus 5mm on the width. For the sake of setting some sort of standard on this product so that customers can match one production to another, it would help if the trade made a decision as to which size should be common to all.

While these trends seem alarming to many in the trade, prices are in reality only clawing their way back to a level that existed in earlier years. There has been a long period of deflation in the industry which has impacted on initiatives such as the financing of the generic and environmental promotion of wood to help it compete with other materials. While the Nordic producers have made substantial contributions to the cause, there is an element of dismay amongst trade bodies as to how poorly supported the campaigns have been by UK companies.

Less enthusiasm

Taking an overview of the situation, there would appear to be less enthusiasm among a number of shippers towards the UK market, and volumes available are decreasing drama-tically. But although importers and merchants are becoming aware of difficulties in the supply chain, demand is still below expectations and they see little reason to panic.

This combination has led to a totally supply-driven market which is more likely to be governed by the influences of the Middle East, north Africa, central Europe and China than anything happening in Britain.

Of course, there is always the chance that if prices are high enough, producers on the other side of the Atlantic might consider the opportunities that are arising here and further changes in the market could come into play.