Although temperatures have dropped recently, heavy snow is hampering progress in the Baltics, and the forecast is for temperatures to rise again with further rain expected. This will continue to restrain harvesting, as the ground will be too unstable for logging machinery.
In common with Sweden, the Latvian forest industry also suffered from insect damage from last spring through to September. This caused forest activity in western Latvia to become almost completely suspended, adding extra difficulties to an already worsening situation. With less fibre on the open log market, exports of coniferous roundwood to the Nordic region dropped by more than a third during 2006, a volume that normally creates contention amongst the Latvian mills that are forced to bid against Swedish and Finnish companies.
As a direct result of fibre shortages, many mills have been unable to meet their contractual commitments, and have been cancelling unshipped balance with buyers. In some cases these have been quite small volumes, illustrating the seriousness of the underlying problem.
Exports fall
With current stocks at the quayside in Riga at only a fraction of what they used to be, UK importers are unsure when production will come back to strength, and if there will be much on offer to British buyers in the foreseeable future. Last year exports of Latvian sawn softwood dropped by 27% to the UK against figures for 2005, representing a reduction of some 400,000m3. In the unseasoned market, volumes have decreased dramatically, and offers are hard to obtain. Where shippers are in a position to offer specifications, the prices have become too expensive for the market to consider.
Sharp price rises of whitewood throughout mainland Europe, and to some extent North Africa, have given the Baltic mills a profitable return on sales, but for those struggling to keep production at an economic level, the future looks uncertain. Some companies have branched into activities outside the wood industry, while others have either increased their value-added product ranges, or simply paid the highest price possible to secure log supply, then sold into the highest paying markets.
For those mills relying on imports of roundwood from Russia, the revised export tariffs by the Russian government will only add to the high price of raw material they already have to pay. The tariff, which stands at €4/m3, is expected to hit €10/m3 in July, and then start working its way up over the next two years to €50/m3. This issue will affect not only Baltic mills, which increased their coniferous roundwood imports by more than 20% in 2006. In Finland for example, both the sawmilling industry and pulp and paper products manufacturers have been relying on significant volumes of log imports from Russia. The paper products industry, being the larger, increased production in 2006 by 14%, contributing to a €21bn forest products industry.
The Finns believe the Russian tariffs will lead to an unworkable cost structure, and the dates laid down for implementation leave them little time to increase supplies from their own forests.
However, the message from Russia seems clear that the log duties will be applied, and higher returns from the forest industries are a necessity.
The shortage of supply from the Baltic states, late shipments and cancelled contract balances have made life difficult for UK importers and, although imports from Sweden grew last year, they did not fully cover the gaps left in the market. As previously reported, Canadian shipments are now beginning to arrive, and the prospect of these extra volumes has cooled the whitewood market in the UK to some extent.
The largest volume lies in eastern production SPF, but there are restrictions in size and length specifications. Supplies in western hem-fir are also becoming available where sizes and lengths are larger and longer, but volumes are still small by comparison.
As a high proportion of goods being shipped are planed and regularised, the appearance is being enhanced, and agents and importers remain confident that end users will find the quality acceptable over and above the technical grading requirements.
Carcassing prices
If UK carcassing prices do stabilise in the near future, the need for Baltic mills to supply even more to higher value markets is likely to intensify as log prices continue to rise. Faced with this, the prospects for British importers to maintain current import levels from the Baltics will become even weaker.
However, one of the driving factors behind Canadian exports is the slackening of the US housing market. There is a varying opinion on this subject, some reports speak of an imminent recovery within the next six months, while others relate to a worsening position during 2007.
If US lumber prices begin to strengthen, this will certainly cap the volume Canadian shippers are prepared to allocate to the UK market, and prices could start to take off once again.
