Housebuilding is still relatively busy and the construction sector is reporting that projects previously on hold are now being released, forming a positive backdrop and encouraging prospects for suppliers.

Currency exchange rates have been the dominant issue for timber traders since June, but most merchants have found that orders from end-users have been strong enough to keep them busier than anticipated for the time of year. Price rises have been absorbed more readily in the market than sellers expected, a clear signal that the cost of basic softwood components used in construction is less critical than the timber industry has perceived.

With the need to provide more housing in the UK, and delivery into the market required at greater speed, future prospects for the use of softwood are growing stronger as combinations of solid wood and engineered products become favoured choices for architects, engineers and designers, particularly for those working on off-site modular design.

Cross laminated timber (CLT) stands out as a new-age softwood-based building component, and used with glue-laminated beams it is set to provide both houses and high rise structures with the accent on factory prefabrication.

Confidence in the strength of CLT panels has led to its incorporation in the plans to build large numbers of dwellings at a recently commissioned factory set up by Legal & General near Leeds. Machinery installation is under way.

House building companies have continued to grow, with Redrow Homes recording a 17% increase over the previous year completing over 4,700 units as an example. The company moves forward with a record order book covering both private and social housing developments. Another national builder, Bellway Homes, noted a 13% year-on-year increase in house reservations between the June referendum vote and the end of July, and they confirm that an upward trend in demand for new build developments continues.

After a lull in construction and civil engineering, several companies are now reporting that projects previously put on hold are being released, and one contact confirmed that “start dates had recently been agreed for new contracts held back since May of this year”.

Some examples of new work include Lang O’Rourke, a major construction company, being recently appointed to build a £1bn leisure and retail development at Edinburgh St James as well as gaining bidding success in overseas developments. In a recent statement, Willmott Dixon has announced it is to build Wales’ first dedicated Science Park on Anglesey, a project valued at £20m.

With some confidence returning, importers and merchants have been buying more volume on a forward basis, and several shippers have confirmed they are outsold for November and are taking positions for December. Some agents have closed contracts for January and February shipment, saying that buyers wish to ensure their specifications are fully covered. This has been particularly necessary with some Baltic mills, where there are still gaps in raw material supply in mid-lengths such as 4.2m, and they need maximum time to organise raw materials.

In the carcassing market, Latvian suppliers are currently trading heavily in redwood due to the higher volume of pine logs available as opposed to spruce. One mill reported that the ratio had reached 80% redwood, and because of this they needed to sell more pre-treated to avoid the likely problems of sapstain occurring in the mill packs.

Currency remains the single most important issue among importers and shippers and many mills that contracted in firm Sterling have made substantial losses when converting payment back to Euros, SKr or US$. Most offering Sterling contracts are now working with an indexed rate adjustment, or only offering in the currency of origin and leaving buyers to buy currency. Some mills have covered forward themselves, but exchange rates in Latvia are more punitive that those available on the wider international market and in the UK

In such a turbulent economic time, every move has its risks, and most contacts conclude ‘hedging’ by covering a percentage of currency is the safest route to allow for ups and downs. As this report is being written, a legal ruling regarding parliamentary voting on the government’s authority to invoke Article 50 gave instant recovery to the Pound from 1.10 to 1.125 in a day. Also, the Bank of England’s improved medium-term growth forecast and an announcement to hold MLR at 0.25% helped to arrest Sterling’s downward trend.

In headline figures, Sterling fell less against the Swedish Kronor than the dollar or Euro since the beginning of the year, but overall it has been on steady decline from last summer, eroding Baltic and Nordic shippers’ margins.

With currency volatility and the timing of contract arrivals, the selling structure of softwood in the UK has been unclear, but it has certainly opened the door for C16 home-grown producers to increase sales as price differentials widen – with British structural wood averaging some £40m3 below imported C24.

Imported softwood demand has maintained good momentum however, and gaps in landed specifications have continued to appear, making availability a critical issue when selling to merchants. Most contacts in that sector have confirmed steady demand and believe there is a fair level of confidence that trade will stay firm into 2017. In the redwood joinery market, prices have been held back by what has been described as a ‘static market’ with sales ticking along and stocks adequate against demand.

There is concern in the sector over the recent fall (devaluation) in the Egyptian Pound, and one trader commented that volumes of lower-grade redwood were already being offered in Europe, that would in current times, normally have been shipped to Alexandria for the North African market.

It is only in recent times that the Egyptian government has raised the cap on US$ and foreign currency payments that Egyptian importers are allowed to make.

Looking at softwood on a global basis, the 74th meeting of the UNECE Committee of Forests and the Forest Industry was held on October 18-20 in Geneva. Early-released statistics and projections showed that the production of coniferous wood from the Baltic States is expected to reach 5.65 million m3, a rise of 8.86% on 2015, and exports are projected to exceed 4 million m3, rising 7% from last year.

Swedish exports look to remain flat, with a marginal increase of 0.6% forecast for 2016 and volumes remaining level in 2017 at 12.9 million m3. Swedish production appears to be holding at around 18 million m3 per year with expectation it will continue at the same level next year. While the domestic market in Sweden is said to remain strong, projections show a fall in consumption of over 4.6% against last year with a forecast of growth in 2017.

Finnish exports are projected to rise by just over 7.5% before the year-end to just under 8.5 million m3. Both Austria and Germany have also raised exports, while domestic consumption has risen by 175,000m3 in Austria and 714,000m3 in Germany.

Russian exports are predicted to rise by over 2.5 million m3 to almost 25 million m3 by the year-end with further volume in 2017 expected to push figures up by another 500,000m3. In North America, production is forecast to increase by almost 3.5% to 103.14 million m3, with most of the rise attributable to Canadian output.

Estimates of UK production in 2016 show growth of over 130,000m3 to nearly 3.6 million m3, increasing in 2017 to over 3.7 million m3. Imports show a rise of over 2.5% to more than 6 million m3 before flattening out in 2017 at just over 0.65% growth.

Overall, from all the listed countries in Europe and North America, no noticeable growth in overall production and exports is expected next year, and in spite of the EU Referendum, 2016 seems to have seen some stability in the softwood supply and demand balance. Without over-production and shippers dumping large volumes of stock, the UK inventories have found a more economically sound level with improvements for importers and merchants alike.

The only missing statistic in all global movements that could shift the balance one way or another is the demand from China.

Most predictors point to a growth in demand for softwood fibre, and what impact that will have, and on what scale, remains to be seen.