Nearly all softwood merchants and importers have described business activities in 2005 as “fairly flat”, and expectations for next year indicate a repetition of this year’s trading pattern.
In spite of a shortfall in demand, few contacts said that they had felt any pressure from end users to reduce prices. In what they see as a weakening economy, they also felt that there was little chance of increasing their selling levels in line with shippers’ demands, at least for the foreseeable future. With the holiday season now fast approaching, the importers have been rationalising stocks in order to reduce financing costs for what will be the best part of two weeks’ trading downtime, the effects of which usually extend for a longer period.
Although some importers have booked contracts for the first quarter, there is a consensus amongst agents and shippers that the UK is under bought and, whereas there is usually plenty of stock to go around, 2006 may prove to be a watershed for change.
Redwood depleted
It has been generally accepted that redwood specifications were depleted during the course of the year as Finnish production was hit by the labour disputes. Although the mills have been catching up with lost production, they have also planned permanent reductions and rationalisation for economic reasons.
Furthermore, product trends and new developments in the softwood sector have induced shippers to re-think their sawing and grading programmes, in an effort to cease churning out the traditional specifications which usually end up with gluts in certain sizes such as middle cut fifths. Instead, they are seeking to refine their products to suit more profitable markets such as green split for joinery, and specifications for laminated sections.
This containment in supply, coupled with demand from other markets, has led to a more bullish approach from the redwood mills in both Finland and Sweden. Price increases equal to SKr125/m3 are now being sought for the first quarter, and an additional increase of SKr40/m3 is also required to cover the rising cost of freight.
Contacts from both Swedish and Finnish exporters warned that there were likely to be noticeable shortages of redwood sizes in the new year, some spoke of shortages in decking material which would become apparent as early as February 2006.
In the joinery sizes, widths of 225mm have now become extremely scarce and, not only are they commanding high premiums, but shippers are insisting that contracts which include these sizes must be balanced with a fair specification from their productions.
Carcassing markets
Turning to the carcassing markets, there is still a split between the fortunes of Swedish and Baltic sawmillers. The Swedes are capitalising on volumes of the wind-thrown log stocks and a more favourable exchange rate, while Baltic mills are facing rising fibre costs, log shortages and a stronger euro.
The difficulties facing the Baltic mills mainly affect the dry-graded market, whereas in the unseasoned market the Swedes are much less active and competition is less fierce.
Due to the harvesting efforts following the January storms, log supplies at many of the south Swedish carcassing mills are close to a year’s production, but how much new fibre will be available in two years’ time is a big worry to the industry.
As log costs in the Baltic region have been rising, so Latvian shippers have been asking for increases, and the forward price of unseasoned whitewood has risen by an average of around 3-4% for the first quarter of next year. With a tighter log supply, certain mills have warned of shortages in 4.8m lengths that are now said to be selling at a premium, in both dry and unseasoned specifications.
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“The pine furniture industry in the UK is now dead on its feet” |
However, rather than pursuing the basic sawn market, the trend for Baltic mills to add value has continued to gain ground. More producers are offering planed and profiled softwood along with standard CLS specifications, and the market for machine-regularised softwood is predicted to grow substantially next year.
As some producers regularise full to the export size while others finish below the nominal measure, a standardisation of finished sizes may be necessary to avoid confusion amongst end users in the future.
The business explosion in China is also having a major influence in the market place, and it has affected softwood as well as the hardwood, panel products and veneer trades. Substantial volumes of softwood are being shipped to China for manufacture into finished products and shippers are obtaining better returns from China than from other markets.
Countries such as North America are exporting sawn softwood to China to see finished products such as furniture being imported back again.
Chinese furniture
In fact, Chinese furniture has swept many other countries’ home production away, and the UK has not escaped this plight. One importer previously supplying British manufacturers put it, “the pine furniture industry in the UK is now dead on its feet”, and certainly decreases in demand of some speciality grades confirm this fact.
China is not the only rising market to affect global demand. In recent years Egypt has become a regular buyer of softwood, and it stands as the top importer of Russian production at just below 1.2 million m3. Increases in Russian exports to countries such as Japan and Iran, which amounted to 15% and 64% respectively during last year, give an indication of changes in the global market place. These changes could have a dramatic effect on UK supply in the coming years.
In addition to export markets, the home economies of the Russian Federation, Latvia, Finland and Sweden are also increasing their consumption of softwood. One Swedish shipper commented that several items from the sawing programmes had already been sold to the internal market before reaching the export sales desks.
Tighter supply
With this as a backdrop to the close of 2005, it would not be unreasonable to assume that volumes will be tight in many areas of the softwood supply chain as trading recommences in 2006.
Whether the new philosophies held by the shippers will be carried through to their fullest extent, remains to be seen. If there are major cutbacks on the specifications everybody has been used to for many years, then there is likely to be a change in the products held in the merchants’ racks.
A glimpse of this has already been seen in the wide whitewood market where 275mm widths have been replaced by edge-glued laminated boards. This could extend to other widths in the future as the larger diameter logs are used more profitably in other manufacturing processes.
Over the years, the sawmilling industry has exercised an enormous skill in plodding on while continuing to lose money: perhaps the time has really come for a decisive change to be made.
