One UK hardwood importer-distributor described the market going into 2024 as “limp”. That sums up the trade consensus.
The backdrop to what another importer described as “sludgy” trading is a continuing slow-moving UK economy. It fared better than forecast in 2023, with KPMG estimating GDP up 0.5% rather than contracting the 1% expected earlier. But with fourth quarter contraction of 0.3% in the economy just announced, it forecasts 2024 growth will hover around 0.5% and only reach 1% in 2025.
The Bank of England also says inflation remains too high. So, it’s maintaining interest rates at 5.25% for longer than hoped. The first 2024 cut of 0.25% is not expected until August, with a second to 4.75% in November.
Key for the hardwood and wider timber sector, of course, are forecasts for the impacts of a sluggish economy on construction. In its January forecast, the Construction Products Association predicts the industry’s output will contract 2.1% this year due to falls in private housing new build and repair, maintenance, and improvement – the largest construction sectors.
“In the current environment, customers are cautious,” said a hardwood importer. “They’re taking more time over finalising projects, or delaying them – and an upcoming election creates more uncertainty.”
Another commented that there is plenty of stock on the ground and no significant shortages. Sales volumes were consequently down and margins “a bit squeezed”.
An importer-distributor said it’s been more a case of managing the market rather than developing it. Forward ordering is down and, freight rates are back on the rise.
“Generally, there’s no great consideration being given to forward price in a quiet and nervous market,” they said.
They thought interest rates were less an issue in the hardwood market, given it is less dependent on new build. “But customer confidence is an issue generally, with people just holding back on spending.”
“Orders are smaller and it’s generally more hand to mouth,” said an importer.
“We’re getting over the line each month, but only just.”
An importer felt that where continuing high interest rates were also impacting businesses was in managing day-to-day trading. “We’re in a strong cash position, but companies borrowing to buy stock must be finding business more painful,” they said.
They added that their prime customer sector, joinery, had slowed. “Businesses are reporting volumes down with the staircase sector, in particular, cooling due to project delays,” they said.
On US supply, an importer-distributor said prices for ash, tulipwood and walnut were “stable to firming modestly”. The outlier was white oak, which has jumped 10-15% in the last three months and doubled over the last seven. Some feel upward price pressure on the species may continue.
Demand from the US barrel stave industry remains robust, and, while Deloitte predicts just a modest rise in US house building in 2024, the Dodge Construction Network is forecasting an overall increase in US construction starts of 7%.
Also expected to keep US prices firm, said an importer, is “lack of available white oak logs going through the system”.
“The quality of wood coming out of the forest also continues to fall,” said another.
“Mills were getting 30% of the higher grade the UK wants per log, now it’s 10-15%. The basket is that much smaller. When you put out 100 enquiries you used to get 70-80 responses. That’s down to 25-30.”
A consequence of white oak inflation is reported to be further impetus in the growth of US red oak sales, which began when white hit its previous price peaks during the pandemic.
European oak prices and supply, say hardwood traders, do not seem to have been significantly affected by European embargoes on Russian and Belarusian imports, or supply cutbacks from Ukraine due to the war. European suppliers are said to be “keen to sell” and prices “erring towards weakening”.
“The European oak business remains generally stable,” said another importer. “And we’ve heard rumours that there is also still pre-conflict Russian timber on the market.
“Where the war has had greatest impact is on larch, but rather than increasing demand for more expensive hardwoods and clears, customers are opting instead for [treated] white wood.”
European beech is reported in stable supply, with demand consistent.
Logistics of African supply remain challenging, but forward prices are said to be generally stable. Iroko, however, is in tight supply and the price firming, while an importer said, sapele, of which there is plenty available, is “tending towards softening”.
Potential stress on African kiln-dried lumber supply was also flagged up, with more capacity dedicated to scantling and other engineered goods production.
In TTJ’s recent tropical wood focus (TTJ November/December 2023), supplier Precious Woods said that in the slower global hardwood market, it had cut back on African secondary tropical species. A UK importer reported the same, although another said, despite the environmental case for using them, lesser-known species still weren’t figuring highly in the UK in any market conditions.
The key topic raised with regards to Asian hardwoods is freight rate resurgence. Container costs were reported down from pandemic period peaks to US$2,000 but importers say they’ve recovered to between US$4,000 and US$5,000.
“And with the Suez situation, plus some opportunism on the part of shipping countries, we may see rates staying around these levels,” said an importer-distributor.
Demand for both temperate and tropical engineered wood products is said to be increasing. One importer-distributor described their performance as positive, although they still required “persistence, [more] product knowledge and market identity”.
Another said they were seeing engineered growth across species, including in US white oak, European oak, Uruguayan grandis and sapele. In the latter, however, they felt some African producers were over pricing. Consequently, engineered sapele from Malaysia was more competitive.
Modified wood is also in the ascendant again, thanks largely to improvement in Accoya supply after expansion work at the Arnhem production facility temporarily reduced output.
“We’re not back to previous peaks, but we’ve doubled monthly sales compared to the low point during the expansion work,” said an importer-distributor.
On the hardwood sector’s radar too, of course, is the EU Deforestation Regulation, which comes in for large EU businesses at the end of this year and six months later for SMEs. It covers all timber placed on the EU market and EU exports, stipulating that operators and larger traders undertake due diligence to ensure no goods are implicated in deforestation and forest degradation. That includes providing geolocation co-ordinates for their origin.
The general view is that there are still a lot of unknowns about the EUDR and particularly its implications for the UK.
There are reports that EU companies participating in piloting of the platform for uploading EUDR data were less than impressed. To put it to the test, one reportedly uploaded information for imports from Africa, but keyed in geolocation co-ordinates for the whole of Belgium as the origin. The system didn’t spot the discrepancy!
An importer raised the issue of Northern Ireland, which remains in the EU single market, and whether timber shipped there from Great Britain and not destined for transhipment to the Irish Republic would need EUDR conformance information.
Another commented: “It will be interesting to see how the UK navigates the volume of West African hardwood which enters the market via trade kilns in the EU.”
A further issue, said an importerdistributor, could be the impact on certified timber supply. There is no ‘green pass’ for certified timber through the EUDR. But reports are that EU operators are seeing certification as a risk mitigation tool, particularly with the FSC and PEFC promising to “align” their schemes with the Regulation.
“So, will we see EU FSC certified timber demand rise, pushing up the cost? And will an unintended consequence be some UK customers opting not to pay the price and just going for legality verification to satisfy the UK Timber Regulation?”
Importers are also following developments in the US. Here, fragmentation of forest ownership is set to make providing geolocation co-ordinates for the origin of their timber exports to the EU extremely complex for sawmills, some say impossible.
Consequently, the American Hardwood Export Council (AHEC) is working on a validation system based on legality risk assessment, data, and satellite technology to prove US hardwoods are not linked to deforestation. At present AHEC is only saying this is “potentially” a solution for EUDR conformance, given the EC will have to accept the approach. But, adds AHEC, it will also enable US hardwood suppliers to make a “global legality and deforestation-free claim”.
One importer stressed the importance of this work, with customers exporting into the EU already asking about availability of EUDR conformance information for US hardwoods.
So, the general view of the UK hardwood sector is that 2024 will be challenging, with “multiple significant issues to monitor”. “Interest rates are still 5.25%, household budgets are stretched, and government spend is down across the board,” said one importer-distributor, “so we need to be careful with inventory. Speculation can wait for another day.”
Another agreed, saying the multiple unknowns ahead made forecasting tough, but with the high cost of money and tight margins, smaller companies particularly could find life difficult.
“We’ve done our budgets for 2024/2025 and with limited prospects for market growth, see nipping at competitors’ market share as one key strategy,” they said. “We won’t be jumping out the window, but we won’t be putting out the bunting either.”
