The governor of the Bank of England isn’t the only one to declare that the economic recovery is under way in the UK. The optimism that was bubbling under the surface of the British timber sector at the time of the last market report is now fully evident, with mills reporting uncharacteristically healthy demand for the time of year. New year bookings are already in the bag and, longer term, there is even talk of the ‘s’ word – shortages.
A big factor in the potential for shortages next year is log availability, particularly in certain regions of Scotland. "We’re hearing of some mills struggling to get hold of stock, with one unable to get timber for a couple of days," said Confor.
"Anywhere north of Dundee there are question marks over securing volume," said a major sawmiller. "South of that volumes are less of an issue but right across the country there is considerable upward pressure on roundwood prices. There is always a lag between the roundwood prices moving up after a sawn timber price rise but we’re looking at an increase of 5-10% in recent months."
The reasons for the tight log supply are twofold. Demand has recovered to the point that British mills are operating at capacity and those mills that are based in locations affected by Phytophthora ramorum are having to deal with increased volumes of larch – and a consequent pressure on spruce availability as harvesting efforts are diverted to phytosanitary measures.
"The main infected area in the south-west of Scotland is estimated at three million tonnes [to be felled over a two-year period]," said Confor. "Given that the total UK softwood harvest at the moment is 10.5 million tonnes per year, this is a very significant figure. Across Scotland there is about 11 million tonnes in high-risk areas, although, of course, being in a high-risk area doesn’t automatically mean that larch will become infected."
The larch perspective
To put the larch factor into perspective, one sawmiller said that whereas its mixed conifer parcels would normally comprise around 2% non-spruce, this had risen to 30-50%.
"We’ve seen a massive increase in the proportion of larch, particularly on the small roundwood and pallet wood," he said.
"There is also quite a significant difference in the average log size," he continued. "Although it’s described as small roundwood we’re typically finding that most of it will make a 6×6 block rather than 4×4. In some ways that’s good but our customer base is geared to 4×4. It’s a bit like going to Tesco for one can of baked beans and only being able to get a jumbo family pack.
"This is a very recent change – just since July – and we’re not sure if this will continue."
There is a fair amount of head scratching going on regarding how larch volumes can be absorbed into the market, but the upside is that there are robust and established mills in the area that foresaw the larch glut and have developed product ranges around it. Plus they have the partnerships in place – "and the clout" – to ensure they secure the necessary volumes of spruce.
"We can fulfil our [spruce] volume requirements but it is having a big effect on escalating costs," said one.
Welsh spruce volumes The situation is said to be more volatile in Wales where recent sales from Natural Resources Wales (NRW) forests have seen a marked reduction in spruce volumes. "Pressure is being maintained on NRW to try to get them to maintain spruce production and the industry is waiting to hear what their predictions are for how much they will bring to the market," said the UKFPA.
Other mills, outside the infected areas aren’t suffering the same species squeeze but are still affected by the price ramifications.
"Apart from the odd parcel [of larch] we haven’t really been affected," said one fencing and pallet specialist. "However, because the carcassing prices have increased, the growers are continually raising their prices. If you’re a big carcassing mill and you’re getting the return on your sawn prices it’s not such a problem but for a medium-sized mill like us, while our sawn prices are rising, it’s not pro rata to the log prices."
As mentioned, demand for sawn timber is extremely strong – uncharacteristically so for the time of year – and mills are running at capacity.
"We went into November with a full order book and that’s unheard of," said a major sawmiller. "We’re taking big orders for December and have commitments to take stock build ready for January.
"It’s really a complete turnaround from where we were in May and it’s just about the market regaining a bit of confidence," he continued.
"And I think this is only the tip of the iceberg. If we go into the new year with reasonable weather conditions then we’ll see big demand."
"I’ve been doing this for 28 years and I have never experienced a level of demand in Q4 like we’re currently witnessing," agreed another major sawmiller.
Whereas the usual discussion is on building stock over Q4 ready for January kick-off, and concerns about "where we’re going to put all this wood and how can we slow production down?", stock levels are now reported in some cases to be "lower than they were post-summer shutdown".
"We’re keeping our mills on extra hours, full shift capacities everywhere and looking at every option for maximising our output and our stock volumes just aren’t moving up," said one contact. "We’re going to hit Christmas with no fencing stock and no prospect of putting any on the ground."
He added that while existing customers would be served as normal, in essence the order book was closed to new customers.
"Our order book is very healthy and we are comfortable right the way through to the Christmas shutdown," said a fencing and pallets specialist. "And we already have good business placed in January."
His mill hasn’t looked back since putting on a double shift after its summer shutdown and he sees no let-up in demand in the foreseeable future.
"If I didn’t take another order on from now we would still have enough business to take us through to the end of the year and I can’t remember that ever happening, even in 2007/2008 when you could name your price."
In terms of product sectors, carcassing demand is variously described as "bonkers busy" and "flat out". The kilns are fully loaded, with big queues building, the planer graders are flat out and housebuilders are sucking in CLS as fast as it can be produced.
"There is not a carcassing, purlin, graded or ungraded product that is not in demand," said one processor.
Prolonged fencing season
Fencing demand has been prolonged way beyond its normal season, with fencing contractors still playing catch-up after their dreadful start to the year. The ground is still soft enough for fencing work and the hurricane that affected much of the south of the country has also created more demand. In addition, the upturn in construction activity has pulled in more fencing business.
Pallet wood production is also firing on all cylinders, with mills saying they are oversold on virtually all sizes and specifications and, in some cases, volumes being sold on an allocation basis.
"For the first time in a long while we have almost no pallet stock – just a couple of loads of standard board," said a pallet wood producer. "Pallet wood is literally coming off the saw, going onto a lorry and out of the yard. There is still an issue with a shortage of 15mm and 16mm pallet board and that is driving the price up substantially on those sizes."
Another primary processor said that he was negotiating Q1 pallet wood prices but that the issue was more about availability than price and buyers were keen to secure supply. Another said that £5/m3 had gone on pallet wood in recent weeks and that there would be a "substantial" increase in January.
Sawn timber prices
In fact prices for sawn timber have risen across the product sectors and while customers haven’t exactly welcomed that development there hasn’t been strong resistance.
"We increased prices tentatively in Q3 – around £5/m³ across the board – and more firmly in Q4 without any real dissent," said a contact. "We believe there will be another 5-6% increase in Q1."
This acceptance and almost expectation of sawn timber price increases is another indication that the wider economy is improving and is creating more confidence within the British timber sector. Optimism for 2014 is high and for the first time in years it is based not on the import substitution factor but on genuine growth in the market.
"Next year is looking good – it’s going to be strong," said a major sawmiller. "I think the nationals are going to be busy, as are the buying groups across all sectors."
"I’ve never been in a position where I can say with confidence in November that the price will be up in January and the level of demand is going to stay healthy right the way through to the summer," said another. "Even if the weather goes pear shaped and demand tails off I think British mills are on for a phenomenal six to eight month period.
"It’s not just a flash in the pan. We’re pretty confident that this is a sustainable level of demand." The challenge now, he added, is to manage that demand and customers’ expectations.
"We’ve grown our business in the downturn so that we would have more capacity in the upturn," said another contact. "We are well placed to serve that increased activity but the global dynamic is that there is going to be a worldwide shortage of timber so those who have strategic partnerships with the customer and the supplier are best placed to make the most of a much stronger market position."
Grown in Britain
The British-grown softwood sector is performing so well at present that the Grown in Britain campaign isn’t having a major impact on it, said a Confor spokesperson. "It’s not something the mills really have to engage with in order to sell their product," he said.
"Where there is greater interest is in the hardwood sector, where we have big challenges," he continued. "We struggle to be competitive and we struggle to get hold of good quality hardwood and for mills to feel confident to build and grow their market.
"I hope Grown in Britain will provide an opportunity for people to persuade the hardwood market to look again at their products. We have so many unmanaged hardwood woodlands and growth [demand] would be great for biodiversity and rural employment – and for UK forestry."
