Mills pay the price for improved log supply

There has been an all-round improvement in log supply in the Baltic region, and this has been reflected in the increased number of offers circulating for both unseasoned and strength-graded material. Many carcassing shippers are still relying on the inclusion of between 10-20% redwood with the balance in whitewood to fulfil their contracts.

Most UK buyers have become accustomed to taking a percentage of redwood in their specifications both from the Nordic and Baltic shippers following several years of whitewood shortages.

This willingness to accept a mix in the species has been strengthened by improvements in the appearance of the redwood content, to the point where the separation of pine and spruce has become much less of an issue.

Initially the main complaint about redwood was the size of knots and the slope of grain, which in many cases meant that a large proportion of the pieces were off-grade.

After uncompromising resistance from British buyers to poor grading standards, most producers have received the message that procedures and presentation have to meet much higher standards. There are some mills that base their entire production of dry-graded softwood on converting redwood logs, and due to their being consistent, have established their brands throughout the UK.

Paying a premium

Buyers are still paying a premium for parcels containing only whitewood, and in the current market this extra cost is averaging around £5-6/m³.

Since the last Baltic market report, carcassing price levels have generally remained stable with a slight firming at the lower end of the scale. However, since early July, a number of Baltic exporters have been undermining the market in an attempt to increase their market share over the holiday period when demand usually slackens off. These mills have become over-stocked and normally only export to the UK. The situation has become somewhat distorted because some of the specifications are being offered through a number of different agents, giving the impression that more volume is available than there actually is.

If these excess volumes are absorbed over the next six to eight weeks, then prices should return to more realistic levels. The producers selling into wider markets are in some cases improving their selling margins, while the larger shippers are increasing their volumes of value-added material. One of the leading mills in Latvia has been producing 22mm sawfalling whitewood flooring, and by using Swedish-style bracking good results have been obtained from home-grown sources.

Specification over price

As always, specification is a more important factor than price and, for those traders consistently providing the sizes and lengths that customers actually require, the market is still proving to be fairly consistent.

One agent currently travelling in the Baltics has reported that some mill owners have extended their holiday closures by a week or more in order to cut back production. The improvement in log supply came at a top price, and there is little economic sense in going through the motions of converting fibre into sawn products, only to be sold at a loss.

Cross-border log supplies from Russia are likely to increase in cost in the near future which will affect a number of Baltic sawmills relying on log imports. Another agent commented that there is strong demand from the Russian home market for construction projects, and this in turn is forcing up prices of unseasoned sawn whitewood by over 5%.

Shipping costs

With the rising cost of oil on the international market, there is no doubt that shipping costs are set to increase. Those mills with a basic understanding of contractual obligations are now insisting that clauses relating to fuel surcharges are clearly defined in their contracts, as they are likely to be invoked over the coming months. Emphasising the growing uncertainty over oil supplies, one shipping agent reported that all of the refuelling berths in Riga recently ran out of fuel at the same time, causing vessels to wait 48 hours for deliveries, or go to another port.

Road fuel costs have also put pressure on haulage companies to increase their rates, and both shipping lines and road hauliers are giving preference to other materials rather than timber in order to obtain more profitable rates. These underlying increases must come through to the delivered price of timber, therefore it is almost incomprehensible why some mills should seek to weaken the market at a time when costs are rising.

As one importer commented, “a reduction in price needs only one phone call to implement, but to claw it back again can take several months. If shippers cannot keep their nerve and wait for demand to pick up, then it is unlikely that they will be around to worry about it next year”.

Sign up for our weekly news round-up!

Give your business an edge with our Timber Trades Journal.

Sign up