With the first half of the year behind the trade, the sawmilling industry has poised itself for the summer shutdown.
Looking back, most producers witnessed an improvement in the market during the first six months, reporting better returns than in the same period last year.
Log supplies in exporting countries increased, and in particular June stocks at Swedish mills were said to have reached a level of over 40% above the same month last year. With the rise in log availability, some bigger producers increased production during the first quarter – a move that was not welcomed by the trade and in particular the small-to-medium southern whitewood mills that feared carcassing supply would exceed demand. Volumes would then be forced into the market using the only tool available – ‘price incentive’.
Those fears were realised in the second quarter, and in the UK it led to a noticeable rise in the level of landed stock and higher mill inventories. But the effect was not as damaging as anticipated, as UK buyers and their Continental counterparts were found to be averse to cheap offers and were not keen to absorb extra volumes. The concept of a writedown of their inventories caused through sudden price discounts was not welcome, and a strong message from across the trade made clear the need for stability rather than erratic movements.
Currency exchange rates also improved considerably in favour of the UK market as the pound strengthened over the Swedish krona (SKr). At the end of July last year, mills were struggling to supply the British market competitively at SKr9.98/£1 whereas at rates in mid-July this year sterling rose to around SKr11.68/£1 – a difference of 17%, making Britain a more attractive prospect.
Swedish mills selling to euro-based markets such as the Netherlands in the year to July witnessed a rise in the value of the euro over the krona of about 6.5%, less of a movement than sterling. However, during the summer of 2013, before sterling started on its recovery path, Continental buyers were paying a higher price than British importers when translated into kronors.
Some contacts in Sweden have suggested that, from around March/April onwards, some larger integrated forest products groups embarked on a strategy to deliberately cut their selling price of sawn and planed whitewood on the open market while increasing log prices to independent Swedish mills. It is widely believed that these groups, which harvest logs for their own consumption and sell fibre on the open market, attempted to squeeze and undermine the position of smaller and medium-sized independent mills. One contact said that a series of cheap carcassing offers was placed on the market while at the same time those same people increased their sawlog prices. If such a practice were to succeed in the long run, it would not be in importers’ interests as it would reduce the current level of choice and competition.
Baltic producers have been more noticeably active in the second quarter, and UK importers have been receiving more offers from Latvian mills than last year. Prices have eased for prompt shipments, again helped by sterling’s higher exchange rate against the euro. At the end of July 2013, the exchange equated to €1.15/£1, current averages (at the time of writing) are around €1.26, a strengthening of GBP by more than 8.7%.
Many Baltic shippers now see the UK as a leading market, with a growing economy and greater stability than other European markets and the mills are keen to get as much continuity going as possible. Log supplies are generally adequate for most mills, and in some areas availability is higher than demand. This could lead to a further increase in roundwood exports to the growing markets in Asia, China has been an expanding market for sawlogs across the three Baltic states.
In the UK, home-grown producers have enjoyed a buoyant demand for fencing materials and graded carcassing. Some mills report order backlogs and increased lead times of between six to eight weeks and, as with export mills, many are closing production until mid-August. One contact commented that stocks were already on the low side and mills were confident that the high activity levels maintained in the first half would continue and they would be "flat out" until the end of the year.
FENCING DEmaND
The unprecedented demand for fencing that gained momentum in January following the winter storms has still not been satisfied, and back orders for raw material are still running from April, in some cases even earlier. In the fencing panel market, which "went crazy" right from the start of the year, supplies are still running far behind demand, and manufacturers see this situation continuing until the year-end.
As UK log prices have increased, so British mills have increased selling prices of all products, which has narrowed the gap between C16 carcassing and C16/24 imported productions. In many cases buyers report it is now faster and easier to obtain imported material, and this has led some merchants to return to Swedish and Baltic productions.
In the redwood market, prices have continued on a stable footing and production is generally thought to be under control. Some shippers remain committed to the relatively new markets in North Africa an Asia that have emerged over the past 10 years. There is not a great volume available to increase UK market share if consumption starts to rise sharply and, irrespective of currency swings, prices are likely to edge upwards for the immediate future.
One contact in Finland spoke of a stable market ahead, but confirmed that log inventory was low, and predicted that production would continue at a tight level after the summer break. He expected everything the mill could offer would be sold, and said there was no desire to increase sawing programmes.
Another spoke of the Swedish "ready-made markets" in the Middle East and Egypt which were paying the same base price as the UK or higher, and said his mill would not increase production or respond to any price drop.
In the lower grades for pallets and packaging, home-grown mills are virtually sold out and, as buyers are turning to imported material, 6ths are now becoming harder to acquire. Baltic producers have stepped up exports of boards, but overall there are still some sizes in short supply. In the UK, timber and builders merchants have seen an upturn in trade across all product lines. In softwood products, fencing shortages have remained the main challenge. Carcassing has been steady, but stock replenishments from the terminals have become an issue because of road haulage problems.
Closures during the worst of the UK recession have left the logistics industry in a trimmed down state, and as the economy has started to improve, competition for trailers has heated up. Businesses selling high-value goods are happy to pay a premium to get goods moved on time, but timber, with its high bulk and relatively low value, has become the poor relation.
Already, trailer delivery door-to-door from some of the export mills is becoming faster and more reliable than using UK haulage companies to collect goods from the quayside shipped in cargo form. In a new twist in the fate for the softwood industry, it would seem that the more successful the UK economy becomes, the more difficult it will be to get goods delivered from the quay
