Summary
• Late last year demand flattened for volume softwood producers, but was more buoyant for smaller mills serving niche markets.
• Despite cutbacks in production last year, there is still a lot of stock on the ground.
• Private growers have held back from the market and now prices are 5-10% below last year’s peak.
• Rising fuel costs are a problem both for harvesting machinery and road haulage.
In a ‘normal’ year the UK forest products industry eases into the Christmas period with a slackening of demand before gearing up for the spring upturn.
Last year was anything but normal and it’s no surprise therefore to find that expectations for the spring pick-up are dampened, although the picture is mixed.
For the first eight months of 2007, UK mills saw rising demand and prices across all product sectors, not only from traditional customers, but also new buyers seeking UK wood at a time of tightening supplies of imported material.
In August markets started to falter and by September there was no doubt that the summit had been passed. The downturn was sudden and rapid – and with no respite in the final quarter, the end of the year did not live up to the promise of the earlier months.
That is the general overview, but within that there are variations. Although some of the volume softwood producers had a flat year-end, smaller to medium-sized mills serving niche markets experienced less of a feast and famine and report a steadier year’s trading. Naturally, those who were affected tend to talk louder than those who were not, so while the overall summary of trading is of a swift change in circumstances, that is not true for all suppliers.
Although mills did cut back on production at the back end of 2007, there is still a lot of stock on the ground. The hope is that normal spring trading will be seen although there is no sign of that yet. The early Easter dates do not seem to have prompted an early upturn – and a side issue is that in several areas schools are not taking the full spring break over Easter, but are reopening after the long weekend before closing again for a fortnight in April. Across the UK that means the holiday period will last for around a month.
Effect of the weather
Of course, the weather is an important factor and the strong winds of recent months should mean there is pent-up demand for fencing. Whether customers will want to start outside work given the continued wet and cold is another matter. And to think that last year the shortage of fencing made national tele-vision news.
Given the fall in house prices, it could be that if people decide not to move they might invest in improvements, including fencing and garden products. However, underlying everything is the credit crisis and the impact this will have on consumers’ decisions to spend or save.
UK sawmills still have good opportunities, with the ability to offer fast local service giving them an edge over imports in the current period of uncertainty, when customers are tending to buy short to top up stock gaps.
Production cutbacks at the end of last year were reflected in a fall-off in demand for logs. Private growers responded to the consequent slipping of prices by holding back from the market, with the result that prices stabilised at perhaps 5-10% down on the peak of last year.
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“UK sawmills still have good opportunities, with the ability to offer fast local service giving them an edge over imports in the current period of uncertainty” |
Considering that there were fears of a plunge in prices against the backdrop of economic problems and in the light of large stocks of sawn goods, the fact that prices fell a relatively small amount and that supply and demand are reasonably well balanced is not a bad result.
Some private growers may feel demand has simply gone off the boil temporarily and that holding back and creating shortages will cause prices to rise again. However, the danger of this approach is that it adversely affects the confidence of industrial users thinking of investments, who need the assurance of consistent and reliable supply. The Forestry Commission provides this to a large extent, but the private sector is becoming increasingly important and is thought now to account for more than half of the total volume of log supply.
Palletwood is moving well, probably due to tighter supply from the Baltic states, while fencing material is varied with some producers reporting good levels of business and others not.
Strong demand from panel sector
Growers report that demand from panel producers is quite strong following the hiatus last year, when the increase in sawmill production resulted in correspondingly higher volumes of sawdust and chip and lessened demand for small roundwood. The reduction in sawn production at the end of the year has changed the balance again.
Exports and biofuel markets were excellent for growers last year and while the same heights are not expected for the next 12 months, volumes should still be good. Exports will be affected by availability of more windblow in Europe and Scandinavia.
Many biofuel plants are in planning, adding to the concerns of the panel sector about displacement of raw materials as a result of the government ‘tinkering’ with Renewables Obligation Certificates. The industry is therefore continuing to be active with political lobbying. It says it accepts that wood has a valuable role to play in fuelling energy plants, but it should be burnt only when it has no other application. For biofuel, the government should therefore prioritise the recovery and use of genuinely ‘waste’ wood and not take virgin material that could be used by sawmills and panel producers.
Log availability
Overall availability of UK logs is and will increasingly be discussed as the industry moves up the slope towards the 2020 peak in production and the subsequent dip that is already having an impact on investment plans. Attempts are being made to try and smooth the peak but it will not be easy. Anything planted today will take 30-40 years to mature. The overall message from the industry is that more woodland should be planted, given the forecasts for growing and potentially competing demand for wood to be processed for commercial applications, used in the built environment and burned as biofuel.
Coming back to the market today, rising fuel costs are still a major problem for the sector, both for harvesting machinery and for road haulage, and coping with that is made harder with the fallback in timber prices from the peaks of last year.
With the UK economy still uncertain and the world worrying about the possibility of US recession and the impact of that on global economies, prospects for 2008 are difficult to gauge. As the UK forest products industry settles down a bit after the hectic trading last year, and with the early Easter sitting awkwardly in the period of expected spring recovery, the overall impression is that the industry is hopeful, rather than optimistic, for the year ahead.
