The Swedish redwood sector is an increasingly globalised industry experiencing growing demand worldwide. The result is a business with rising output and an upbeat outlook.

In fact, the only more cautious general note from suppliers is that, such is international demand, UK buyers need to plan ahead to ensure forward timber needs are covered.

Setra’s four international redwood market regions, Asia, Europe and the Middle East and North Africa (MENA), have often been at a different point in their economic cycle. But Bill Urmston, director Setra UK, says they are all currently aligned and trending upwards.

“They’re all performing well and the good news is that our supply to date has also been in balance with demand,” he said.

At Holmen Martinsons Timber Ltd, the UK sales arm of both Swedish businesses, managing director Andrew Nichols gave a similar verdict.

“We’re not in a crazy demand situation, but it’s a nice solid market position,” he said. At SCA Timber Supply Ltd, sales commercial director Stephen King also confirmed the picture.

“Redwood has been positive for 12 months, with demand improving in many global markets. Sawmills have adapted and production has increased, particularly in Scandinavia.”

Södra said its redwood business had “made a very quick turn around”. Late into 2016 stocks were high, largely because of a then weaker MENA market and the company reduced harvesting.

“Then in Q1 2017, reduced redwood production combined with new markets and recovering MENA demand. We achieved market balance and prices started to rise,” said the company, adding that Södra also introduced a Skr50/m3fub log price rise in April.

The MENA region has been a core market for Nordic red and whitewood for sometime, underlined by the formation of a joint sales and promotion organisation there, Uni4, by SCA, Martinsons, Holmen and Södra. Others agreed the market’s political uncertainties and recent slow oil price recovery did not help business in 2016, but the combination of young, aspiring populations and construction growth means it remains a key target.

“MENA has continued to experience some turbulence, but underlying growth and demand for wood remains positive,” said Mr Urmston.

The region’s importance was reiterated by Holmen, which described it as one of the catalysts for international price trends.

“Egypt recently experienced problems, but we reallocated exports to other markets,” said Mr Nichols. “We’re now also seeing trading licence issues in Algeria, but still no pressure for discounting.”

Meanwhile consumption in Asia continues as one of the [itals] drivers of the international redwood market, with China leading the charge. At the same time it is undergoing an important shift.

“China remains a market largely for sawn timber, but previously it was importing to process the material and re-export as finished goods,” said Mr Nichols. “Now a significant proportion of imports are consumed domestically by an increasingly affluent society.”

This, say producers, can play to Nordic suppliers’ advantage.

“Canada responded to earlier Chinese raw material need and sold them a lot of timber felled because of mountain pine beetle,” said Mr Nichols. “Now that’s drying up and there’s a feeling we’re seeing Chinese quality requirements moving up to Scandinavian products, [at the same time] as increasing quality demand in Scandinavian production.”

In TTJ’s recent Canadian report (TTJ May), there was also acknowledgement that Nordic producers had been “astute” in their Asian marketing and were continuing to make inroads. Mr King agreed.

“Sawn timber prices have increased recently partly because of sawlog price increases, but also improved demand, including further significant increases from South-east Asia and particularly China,” said Mr King. “We’re expecting Chinese demand to grow annually for the next five to seven years – probably beyond.”

While Japan may have been through years of recession, it too has remained among the world’s biggest softwood importers, including redwood, and developed particularly strong links with Sweden, said suppliers.

Rising interest in Swedish redwood, from a small base, is also reported in the US. This was initially attributed to continued housing recovery but there is now the added factor of tariffs on imports from Canada after the Trump administration rejected the countries’ existing Softwood Lumber Agreement.

The European market is also reported to be performing well.

“We’re still experiencing weakness in parts of southern Europe, but in the core markets of Germany, France and Benelux, trends are positive,” said Mr Urmston.

As for the UK, despite the unsettling effect of two votes in 12 months and the fall of the pound against the Swedish krona pushing up prices, suppliers say it remains a leading Swedish redwood market.

“There’s been a feeling of fragility beneath surface market strength since the referendum and in the lead-up to the general election buyers became more cautious and less prepared to buy volume,” said Mr Nichols.

However, he added, underlying market and demand factors had remained strong.

“The UK still has a housing shortage, a construction industry not yet fulfilling latent demand, and both main political parties committed to housebuilding, so indicators for increasing consumption are good.”

SCA also sees increasing redwood interest in UK construction.

“General solid wood for the sector has traditionally been a spruce product but the increase of treated graded material has seen a rise in redwood use, mainly within parcels including pine, spruce and strength graded,” said Mr King.

Mr Urmston also saw encouraging signs in joinery, RMI and DIY sectors.

The garden products industry, he added, was also proving another key segment of Setra’s business.

“Decking is in strong demand,” said Mr Urmston. “We had good shipments during the winter months ready for the 2017 season and still we see a continued demand.”

The Brexit Effect

The consensus is also that, pending serious unforeseen circumstances, ongoing Brexit negotiations won’t unduly impact the UK/ Swedish timber relationship, such is its key importance to both parties, with the UK said to be regarded as effectively an extension of the Swedes’ domestic market.

Underlining this commitment, SCA points to growing service flexibility from Swedish suppliers.

“SCA offers direct contracts with our sawmills, on either a prompt or forward basis, or alternatively via our Hull terminal stock,” said Mr King. “In recent years there’s been an increase in these facilities available from redwood suppliers, and customers have taken advantage; the trend being to secure core specification on a forward basis, then use the terminal to top up. Some also see enhanced value in using the terminal for more substantial volumes, to control raw material stocks better and have the security of goods in the market for quick delivery.”

Emphasising the confident nature of the sector, suppliers say that capital spending is also ongoing, made “more palatable”, said one company, by the loss of smaller competitors in the downturn and reduction in Rörvik’s redwood capacity.

Setra reports continued investments across its eight sawmills and three processing sites, while SCA maintains its rolling programme of upgrading elements at each mill, such as kilns and grading lines, where required. The most recent significant investment has been a new sawline at the Tunadal sawmill.

Holmen has just increased capacity by acquiring the 70,000m3 Linghem sawmill to complement its 500,000m3 Braviken site.

“This will give us greater flexibility by processing 3m logs, previously made only from cross-cutting in Braviken,” said Mr Nichols.

There’s also a focus on doing more with the Swedish redwood resource to maintain current market momentum into the future.

“This is one focus of the Skogsindustrierna Swedish Wood Steering Group, comprising Swedish representative companies in the UK,” said Mr Nichols. “It’s the industry working together to develop the sector for the future.” Engineered timber products are one area under examination.

“It’s certainly on the horizon for Holmen and we’ve been examining the potential,” said Mr Nichols.

SCA has also been trialling new treatments and looking at coated/painted timber for external cladding, initially in Scandinavia.

“These have primarily been for the Scandinavian market, but will be rolled out to others where demand develops,” said Mr King.

Given the strength of redwood, suppliers are now expecting further raw material prices to start feeding through.

Comments were more mixed on additional timber sales price rises over and above recent currency-related increases, but the consensus is that prices certainly won’t be coming down.

“Our year-on-year performance is where we wanted and expected it to be so price levels are sustainable,” said Mr Nichols.

The strength of global demand, however, has prompted warnings of some shortages in key specifications from suppliers. In fact, they said, low stock levels in certain redwood areas were already becoming apparent and customers were recommended to ensure their needs for Q3 were met.