I don’t think we’ve ever had a market situation which has elicited so many comments of “unparalleled” and “unprecedented” as we have with the softwood market in 2019.

People in the trade for 30-40 years were left scratching their heads to remember a market situation which had been remotely similar. Of course, it was the speed of the price collapse, approximately 25-30% for volume softwood carcassing, that had softwood traders so vexed.

But with the new year has come better levels of confidence, a feeling that softwood prices have reached the bottom and price increases are probably around the corner. Talk of shortages in timber specifications are even surfacing, which may be a topic being discussed at the UK Timber Trade Federation’s Softwood Conference on March 4.

The resolution of the Brexit direction, the election of a majority government and a better balance between supply and demand are having a positive impact, according to market players.

The importance of the UK market to Latvia has obviously played a part in the performance of its sawmills in 2019 and many mills have inevitably felt the impact of the market uncertainty.

The most recent forest product export figures from the Latvian Ministry of Agriculture cover January-November 2019.

They show that during the 11-month period Latvia’s total forest industry exports were valued at €2.4bn, down 2% from the €2.44bn recorded in the same period in 2018.

Exports to the UK, Latvia’s biggest export market, reduced by 6.2% to €422m, while Estonia leapfrogged Sweden as the number two market with a 23% growth up to €304.6m (2018: €245.8m), France experienced 11% growth to €81m.

Total sawn wood exports from Latvia during the period were 3.02 million m3 (2018: 3.16 million m3), a decrease of 4.4% by volume, while the export value was down by 9% to €620.9m (208: €683m)

Total coniferous sawn timber exports were 2.68 million m3 (2018: 2.70 million m3), down slightly by 0.6%, with the value falling by 6.6% to €551m (2018: €590m).

The key figure of coniferous sawn exports to the UK was 1 million m3, down 2.4% from 1.029 million m3 a year ago. The value of those exports reduced to €221.4m (2018: €247.02m), a 10.4% decrease.

The South Korean and German markets were exceptions with volume growth of 11.6% (to 162,100m3) and 13.4% (to 134,700m3) respectively. The Estonian export market experienced a 21.6% fall in volumes to 178,400m3.

The non-coniferous (mainly birch) market saw a reverse of around 25% in volumes and value for the 11 month period. Volumes dropped to 339,600m3 from 461,700m3 a year earlier, with export values reducing to €69.4m (2018: €93m). Some destination countries saw volume reductions approaching more than 30%, with only Estonia registering a positive increase.

In terms of plywood, Latvian plywood export volumes dipped 22% to 284,500m3, with the export value reducing 20% to €197.4m. Export volumes to the UK were 44% down to 30,300m3 and 40% down by value to €19.7m. Latvia’s roundwood import volumes were down nearly 8% during the period to 968,800m3.

Meanwhile, going back a bit further, official government stats show Latvia’s timber production in 2018 was 12.86 million m3, up from 11.44 million m3 in 2017, which in turn was up from 10.56 million m3 in 2016. The 2018 total was the highest output since 12.9 million m3 was recorded in 2010, but 2019 is likely to be lower. In 2018 the level of damaged forest stands was at its highest since 2014.

In Estonia, Q3, 2019 saw exports of sawn softwood increase by 4% to 154,138m3 on a year ago, with exports to the UK down significantly for the first three-quarters of 2019 but from a low base.

Harvesting hampered by weather

The mild winter weather currently being experienced in the Baltics has made harvesting difficult, with soft ground hindering felling teams’ access.

The Latvian Timber Producers & Exporters Association told TTJ it was a problem but not a crisis.

“The Latvian winter has not really arrived and there is no indication when it will,” said a spokesperson. “As a result, not only is logging difficult, but it is also beginning to restrict the transport of logs on low-capacity regional roads. At the same time the situation is not so critical to talk about serious downtime at sawmills and board plants.”

The spokesperson said the fall in Latvian sawmill production cannot be blamed solely on the mild winter, as it has already reduced since the middle of 2019 in response to the fall in prices.

“Everyone is aware that last year’s fall in prices and the levels reached at the end of the year are not sustainable, so the market is currently undergoing a new balance.”

With the Latvian primary processing sector having invested heavily in modernisation and productivity over the past decade, no major sawmill investments are expected in additional capacity. “It has no basis due to the availability of logs in the region,” the spokesperson said.

One Baltics sawmiller acknowledged some mills were struggling for logs, although he said his own was well stocked due to early ordering.

“Some of the mills are not having good financial results for 2019 and there are problems with raw material,” he added. He said he would not be surprised to see some mill casualties, particularly in Estonia.

2020 Market prospects

While uncertainty reigned last year, many importers and Baltic sawmillers inevitably missed their annual budgets. Despite volumes holding up, only one contact said they were likely to hit budget. With C24 carcassing prices plummeting from around £255/m3 to approximately £185/m3 during the year, it was worrying times to say the least.

One of Estonia’s largest sawmillers went on a current affairs TV programme to compare the market with a crash in prices that happened 2007-2008, citing a 60% price drop in some of its international markets during 2019. He said damaged spruce timber had been available in Europe at half the price of its break-even price.

But 2020 has dawned with better expectations.

“I see 2019 as a lost year in the UK because everything went wrong,” said a Latvian sawmilling contact. “We feel that now there is a much better atmosphere. We still have not achieved any big price increases in the UK but we have had some improvements in other markets.”

“We have seen some price increases in specific products but I am pretty convinced that February to March and into Q2 will see price growth.”

A UK softwood importer said it was still early days in 2020 “but it has started quite well”, with steady business helped by more economic and political certainty. He admitted he had used the word “unprecedented” many times to describe the 2019 market.

“But we have reached the bottom and I think prices should bounce back.”

He predicted shortages in timber specifications due to mild winter weather in the Baltics hampering forest log extraction, giving further reasons for prices to rise. UK buyers, he said, were oblivious to the potential of this dynamic.

He predicted double digit price growth in the second quarter when timber buyers start re-ordering, although others think the increase will be more steady.

Another contact emphasised that the situation by the end of 2019 was not sustainable, with importers and sawmillers losing money. “I would not be confident about guessing any particular level of increase but it is starting in February and it will start with small steps.”

A further UK importer said price increases were not in doubt, only the degree of increase. “The sawmills and forest owners want more money and we will have to accept that,” he said.

Reduced stocks of sawn goods, a level of decrease in European mill production, the already mentioned weather impact on harvesting and strikes in Finland are all factors pointing to a better balance between supply and demand. Better demand in the US and in other European and world markets is also being reported.

Fears over whether the EU will put duties on exports to the UK post-Brexit are still being expressed but, as one importer said, everybody importing wood would be in the same boat. “My message is keep calm and carry on!” he added.

More chatter about climate change is also surfacing. What if we are set for regular milder winters? Will lower winter log extraction rates and resultant higher costs for raw material be here to stay?

Complaints about roof batten quality and standards have also been expressed. “The biggest problem we have is when you have a tough market, which we are all in at the moment, there is a pressure on product quality,” said an importer.

This, he added had the potential to compromise construction health and safety and he wanted to see more policing by trade organisations.

Another issue coming up more and more is the time bomb of construction sector skills shortages. Having a sufficient skilled workforce to build an increasing number of homes could act as a brake on growth. For instance, many roofing contractors serving housebuilders are busy and have more than a six-month lead time on their availability.