Worries over the giant economies of the US and Japan have cast a shadow over the hardwood trade, with significant price falls recorded among many of the previously firm North American species as well as among Far Eastern hardwoods.

For months, there had been speculation about when the economic bubble would burst in the US and about the impact this would have on the wider hardwood trade. According to all available sources, the wait is now over and the trade is beginning to see the effects. Production cutbacks, short time working and even shutdowns are understood to be taking place.

One hardwood agent who had recently returned from the US reported deep concern over stockmarket falls. There had been a widespread move towards ‘moving significant quantities of timber on to the market at lower prices’, although generally in the lower grades. Little change was to be found in green lumber levels, he added.

While many larger sawmillers remain confident of riding out this storm, a substantial number of smaller operators are understood to be closing because they are unable to buy timber given the low sales prices they can secure for their own products. Many mills are also being hit by the ‘double whammy’ of having a sizeable log inventory.

With an estimated 85% of all US hardwood logs coming from private land, there is concern that these owners will not sell if prices remain at current levels. ‘There are those who believe,’ added the agent, ‘that the faster prices go down, the faster they will go back up.’

Experts do not anticipate that the US economy will regain its stability until the end of the year at the earliest. Hardwood prices have already fallen in many instances and some buyers on the other side of the Atlantic are believed to be sitting back and waiting for further declines.

The log inventory in the US appears to be high, with plenty of ‘ready to ship’ timber available to the UK market and sellers ‘prepared to take low prices’. A leading importer went on to explain: ‘The UK market is incredibly competitive for anything worthwhile and we are seeing price cutting in those easy items – such as thin sizes in ash and tulipwood – that are easy to replace.’

Pressure selling

According to one UK contact, ‘we have been contacted by a whole spate of shipping lines who haven’t spoken to us in years’. Another believed some of the major US companies particularly dependent on exports had panicked and resorted to ‘pressure selling’, thereby ‘driving the market down still further’. Another said it was almost impossible to quote meaningful prices at present because the market was ‘inventory led’.

One source believed the situation ‘must be very confusing for customers’ as many hardwood prices were falling at a time when ‘green lumber prices at the sawmills are high and holding’.

According to most experts, ash and tulipwood are two of the weaker North American hardwood species in terms of price. Hard maple has fallen back less significantly into a range of US$2,625-2,700 per thousand bd ft cif for 4/4 material but is said by leading importers still to be attracting solid demand in the UK. Both white and red oak appear to be more stable in price, although several leading importers report continuing quality disputes with relation to the former.

On a more positive note, the price of cherry appears to have held relatively stable, possibly because it is a low volume species whose production and specifications are under more pressure than other North American hardwoods. One agent reported concluding business within the last week or so at US$3,550 per thousand bd ft cif for 4/4 material.

Meanwhile, several contacts reiterated both the price firmness and growing popularity of steamed US black walnut in the UK market. One source said: ‘It is really coming to the fore. Perhaps people are tiring of the white woods and are looking for something of a contrast.’ That said, production of the species in North America remains somewhat limited.

One importer believed the turbulent economic situation in Japan was even more worrying than that in the US where he believed falling prices and production cutbacks would be forgotten by the autumn once material shortages began to emerge. Japan, meanwhile, underpinned not only many of the Far East economies but was also a major buyer of US material. A prolonged downturn in this economy would therefore have far-reaching consequences, he suggested.

Economic fallout from some of the world’s largest markets has coincided with lower than normal demand in the UK for the time of year, not least because winter weather and flooding have conspired to delay new housing starts and refurbishment projects. According to several contacts, a quiet January was followed by a relatively brisk February, but March has generally failed to live up to expectations.

&#8220The market is still consuming what it brought in last year and so there is not a lot being booked forward’”

Optimists point with good cause to the fact that many projects must eventually get under way once the UK experiences its first prolonged spell of dry weather, and this should result in an unleashing of some pent-up hardwood demand.

The slide in Far East hardwood prices has continued in recent weeks. Dark red meranti was put generally in the US$710-735 per tonne range for 2in material, although some contacts suggested that somewhat lower spot prices were available. Keruing has also witnessed a price fall since last year with demand described as ‘sporadic’ and even ‘dead’ in the case of thicker specifications.

Far East

Production in the Far East has been hit by poor weather and logging difficulties, but shippers still appear to have sufficient material to offer the generally far-from-hungry global market.

‘France is buying but the markets in the UK and Germany are dead,’ said one trader. ‘Shippers are trying to talk the market up but Europe is not really buying – perhaps because of a degree of over-stocking towards the end of last year.’ Another contact agreed: ‘The market is still consuming what it brought in last year and so there is not a lot being booked forward.’

The gulf in the recent price performance of Far Eastern and African hardwoods was amply illustrated by recent ITTO statistics. At the end of last year, meranti and keruing logs were fetching only around 70% of the average prices achieved in 1997 while iroko, sapele and obeche/wawa prices were respectively at 160%, 125% and 105% of their 1997 levels. In terms of sawn lumber, meranti and keruing were respectively at 70% and 67% of their 1997 levels at the end of last year, compared to 120% for sapele and 115% for utile.

For the moment, sapele appears to have taken a slight backwards step to around FFr3,400-3,500/m³, despite the fact that demand in the UK remains reasonable. Iroko is said to be relatively stable in price although the arrival in Ireland of substantial tonnages earlier this year has left this important market with temporary ‘indigestion’. As for sipo, the price remains high and business brisk for the small volumes of the species that are available. Increasing tightness in the supply of Brazilian mahogany has generated increasing interest in sipo but the species remains difficult to source. ‘If I had more, I could sell it,’ was the general message coming from the trade this week.

‘No major supply shocks’ are reported from West Africa although volumes coming out of the region are described as ‘unspectacular’. One agent suggested that delivery had become ‘even more unpredictable’ over the past few months while an importer noted ‘a steady trickle of offers’ and a generally smooth supply picture. ‘From a buyer’s perspective,’ he said, ‘Africa is the best it has been for a while.’

Availability of Brazilian mahogany is tightly restricted at present, with delays in quotas put forth as part of the problem. Only small quantities are being offered and this situation is expected to continue at least for the short to medium term. One regional expert commented: ‘There is a bit of mahogany coming out of Brazil at horrific prices, but if we could get more we would be able to sell it. The quota system is still holding up the flow.’ There was even a suggestion from another quarter that mahogany was generally finding its way ‘only to those people who are prepared to finance the mills’.

Brazilian mahogany

The consensus is that, even when the Brazilian export market kicks into gear, environmental restrictions and a host of other problems will ensure availability to the UK is decidedly limited. An opinion voiced by the trade with increasing regularity is that mahogany is destined to become a high-priced, low-volume material for which niche users will be prepared to pay a premium.

Brazilian cedar is somewhat easier to source than mahogany and prices are holding steady.

Business closures dominate the news from an embattled UK kilning sector. One of the company’s announcing the cessation of kilning activities is Stockwells Ltd (TTJ March 24), which blamed the decision on ‘unsustainable losses’ resulting from rising overheads, reduced demand from certain sections of its customer base and the damaging effects of exchange rates.

Those kiln operators that remain report a relatively normal workload comprised principally of sapele, with smaller quantities of home-grown timber and only occasional parcels of Brazilian mahogany. One well-known operator was successful in pushing through a price increase towards the end of last year but said that the additional revenue was still insufficient to offset the rise in overheads. ‘It is our first increase in a while,’ said a senior company spokesperson, ‘because we had been having a lot of competition from the Continent. But this seems to have died down a bit.’