More than 240 participants joined the TTF’s annual softwood conference, held virtually this year on March 31. Speakers covered global markets and provided supply perspectives from Sweden, Finland, Latvia, Ireland and Britain. The message delegates heard over again was that demand will continue to outstrip supply for at least the foreseeable future, and that sawn timber prices will continue to rise.

Olle Berg, executive vice-president market and business development at Setra, provided a global market outlook from 2021-25, pointing to the widespread and largely Covid-related plunge in GDP in 2020 and to recovery in 2021/22. Longer term growth would be slower, he said, but the coming years look “fairly good”.

Mr Berg did pose the question of whether the enormous fiscal stimulus during the pandemic would impact housing starts and renovations and whether there would be a financial “hangover” from 2023, but added that housing growth looks promising, due to population growth and heavy urbanisation.

Overall, global softwood demand is predicted to grow by 48 million m3 to 2025, with the US recovery and China’s continuing growth being the main drivers.

Turning to Europe, Mr Berg said demand was expected to increase by 10 million m3 to 120 million m3 by 2025, driven by the need for new housing and substitution of materials.

“There is a better outlook for repair and maintenance in almost all countries, upholding good wood consumption in the coming two years,” said Mr Berg, adding that wood is gaining ground as a building material in all European markets. However, the construction sector will take a while to recover to pre-Covid levels.

The Middle East and North Africa (MENA) region is a very important market for Finnish and Swedish suppliers and here the long-term outlook remains “sluggish”, However, there is “a tremendous need for housing stock”, due to the very low average age of the population, and high demand for softwood in these countries because inventories are so low.

The US market had a massive influence on global trade in 2020 and this will increase.

The country’s housing sector has been recovering, gradually increasing from just 450,000 housing starts in 2008 to 1.4 million in 2020. That figure is expected to reach 1.6-1.7 million between 2021-2025 but will remain below the 1.8 million per year the country needs – and well below the pre-financial crash level of two million.

An aging housing stock is also positive for the repair and remodelling market and overall wood consumption is expected to increase by 25% (20 million m3) to 97 million m3 by 2025.

Demand has increased at the same time as volumes from Canada – and British Columbia in particular – decreased and this has led to a continuous need for imports from Europe.

The second largest softwood market in the world after the US is China and here consumption is expected to continue to increase by 15% (10 million m3) to 75 million m3 by 2025. GDP is forecast to grow by 5-6% in the coming years.

China is predominantly a redwood market and the lion’s share of its supply (60%) comes from Russia, which has the capacity to increase shipments. Canadian volumes to China are declining due to a drop in Canadian output and more interest in the US market.

The country continues to offer opportunities for European producers and bark beetle logs and lumber from central Europe will be exported in large volumes – although competing with lower grade construction material from Canada and Russia. Swedish and Finnish material is aimed more at the higher quality furniture sector.

Japan, which is also an important market for Sweden and Finland, is a different story, with housing starts in decline due to the country’s aging population and low immigration. Having said that, timber houses are expected to maintain their market share of 45% of the total, which equates to 335,000- 340,000 houses per year.

Global softwood supply will also expand, although it’s quite a mixed picture. For example, the Canadian harvest is set to decline by 10 million m3 by 2025 as a consequence of the mountain pine beetle and the stricter sustainability goals. In the US south-east there is potential for growth and the same is true of the Russian far east – although infrastructure issues, such as the lack of by-product consuming pulp mills in the area, would have to be addressed.

Russia’s output of saw logs has increased by 20 million m3 in the last 15 years. President Putin has imposed an export ban on logs from January 1, 2022 and this may accelerate investments in its far east region, but if the ban is fully implemented there may be a short term fall in its exports to China.

In central Europe the bark beetle crisis is expected to peak until 2022, after which time harvesting, and the proportion of damaged logs, is set to decline.

“Until 2022-2023 almost 100% of logs will be damaged and harvesting will be at the 100 million m3 level,” said Mr Berg.

Europe’s harvest of logs would be “more or less flat” until 2025, he said, with not much room for growth in Sweden, Finland and central Europe.

Mr Berg’s overall conclusion was that production increases would not exceed consumption increases and that “a larger global under supply of wood” was inevitable.

Nick Moore, managing director of Timber Trends presented his findings on timber trade flows to the UK.

A normal trading pattern in an average year would show an increase in Q2 and then a gradual tailing off later in the year. This all changed in 2018 when the spectre of Brexit caused a demand spike in Q4 and in Q1 2019.

“The Brexit effect disrupted the normal course of softwood imports but that was small beer compared to the distortion [caused by the pandemic] in 2020,” said Mr Moore.

Softwood imports were down 24% in Q2 2020, compared to 2019 but from May imports grew on the back of demand from those building sites that had re-opened and the burgeoning repair, maintenance and improvement (RMI) sector. As a result, the second half of 2020 saw an increase of more than 1 million m3 of softwood imports compared to H2 2019 and the turnaround in Q4 – up 47% – was “truly remarkable”.

Import volume increases came from “virtually everywhere”. Planed goods imports were 305,000m3 more in H2 2020 than in H2 2019; sawn goods were up by 715,000m3 in the same comparison periods; planed pine was up 80,000m3; sawn pine was up 301,000m3; planed spruce was up 320,000m3; and sawn spruce was up 314,000m3.

Other sawn imports were 100,000m3 more in H2 2020 than in H2 2019 and combined 2020 softwood imports were up 3% on the year before (2020: 6.58 million m3; 2019: 6.394 million m3).

Also estimated to be up by 3% in 2020 is UK softwood production (2020: 3.4 million m3; 2019: 3.41 million m3) – as is UK consumption (2020: 9.873 million m3; 2019: 9.611 million m3).

Forecasting in the current climate is nigh on impossible, but Mr Moore forecast a 4% growth in softwood imports. “This is subject to debate and may be considerably higher,” he said. “The UK might breach 7 million m3.”

The main driver of this growth is housing starts, estimated to be 159,000 in 2020 and expected to return to pre-Covid levels this year, with 202,000 starts.

The prospects of a return to normal trading patterns in 2021 were non-existent, said Mr Moore. “But hopefully the uncertainties of Brexit and Covid are behind us and there is a high level of optimism that we’ve turned a corner. Trading patterns will certainly be higher than in the past.”

The following four presentations focused on supply into the UK market – from Latvia, Finland, Ireland and from the UK itself.

Kevin Hayes, UK managing director at AKZ Latvia, said that volumes from the country’s state-owned forests were down by 15-20% and that private growers were “reluctant fellers”, although demand for logs is incessant and the private sector is looking at “very serious price increases”.

Log imports into Latvia “rocketed” by 244% in 2020. This rise has led to growth in Latvia’s remanufacturing sector.

Sawmilling capacity in Latvia is static, with no major outages caused by Covid. The industry is facing higher production costs, however, not just for logs but for energy, labour and for compliance with FSC/PEFC.

Another hiccup has been a shortage of ships and containers.

“There was serious ice in January and February and a lot of the small tonnage non-ice class vessels went to the Med for richer pickings and they haven’t come back,” said Mr Hayes. “A higher level of containers has gone to the US from the Baltics and the cost has gone up enormously. Huge volumes of pulp logs are piling up at the ports and causing congestion.”

Latvia’s softwood exports to the UK at the end of 2020 were 14% up on 2019 (to 1.289 million m3) and the country remains committed to the UK market, but limited supply, increased domestic demand and rapid price inflation means that buyers must be prepared to pay the price.

“Structural timber prices in the UK doubled in 18 months but it’s still half of what they can get from the US market,” said Mr Hayes.

Finland’s timber production wasn’t dented by Covid and the biggest impact on output was the strike action in early 2020, said Matti Mikola, managing director of the Federation of the Finnish Woodworking Industries.

Finnish sawn wood inventory was around 10% down at the end of 2020 (output 10.8 million m3 in 2020 versus 11.3 million m3 in 2019). And the Swedish/Finnish combined inventory was down 23% (output 29.2 million m3 in 2020 versus 29.8 million in 2019).

Total Finnish softwood exports were down 8% in 2020 and those to the UK, which accounts for 9% of exports, were down 6%. Exports to the US increased by 135% but this was still below 100,000m3 and only represented 1% of total exports.

Finland’s domestic market saw an 8% year-on-year increase in consumption as the DIY and summer house markets boomed. The Finnish government’s target of wood construction having a 45% share of public buildings by 2025 has also boosted demand.

Turning to the UK-grown sector, Keith Ainslie, sales director at James Jones & Sons outlined the production trend from the first lockdown, which had seen mills concentrating on pallet wood production, then fencing and, by the middle of the year, carcassing.

“H2 pretty much made up for all of the H1 deficit,” said Mr Ainslie. “Mills would normally throttle back in the winter but that didn’t happen, so there was no stock building and by Q4 most mills had implemented allocation systems.

“Most mills also reduced their ranges and focused on volume output,” he said.

There were also challenges in selling co-products as panel mills had cut production. Mr Ainslie’s estimate for UK sawmills output in 2020 is a more optimistic prediction than Nick Moore’s, at 3.6 million m3 and this is slated to rise to 3.8 million m3 in 2021. Notwithstanding that predicted rise in output, UK mills are operating at or close to capacity. “There are next to no unused shifts and no significant additional production capacity is planned,” said Mr Ainslie. “Investments have been on efficiency rather than on increasing volume.”

Selling prices were being determined by demand rather than log prices, he said, and there is no sign of a let up – either in spiralling prices or demand.

“A 4% increase in UK consumption is very realistic,” he said. “It will only be constrained by supply.”

According to Glennon Brothers’ estimates, sawmills in the Republic of Ireland (ROI) represent around 9% of all the UK’s imports of sawn wood (550,000m3 per year), of which 40% is construction timber, 40% fencing and 20% pallet and packaging. More than 95% of all softwood exported from ROI goes to the UK, valued at around €150m.

With the UK being such an important market for ROI, Brexit has been at the forefront of planning, with the objective being to maintain continuity of supply, said Mike Glennon, joint managing director.

“A lack of urgency and a shortfall in administrative capacity has led to delays in obtaining phytosanitary certificates for shipments of logs and sawn timber with bark,” said Mr Glennon. “Additional costs have been felt as a result of customs clearance compliance and association admin.”

He added that trading between the ROI and the UK fell sharply in January, with exports from ROI to GB down 14% on January 2019 and imports from GB to ROI falling by 65%.

“Some of this can be attributed to Brexit stockpiling and challenges associated with Covid-19 but it is too early to assess the likely impact of this yet,” said Mr Glennon.

The single biggest challenge Ireland’s sawmilling sector had been facing, he said, was the felling licence “catastrophe”, which had resulted in a dramatic reduction in the supply of Irish-grown logs.

Volumes from the state forestry company Coillte were down more than 420,000m3 (around 20%) in 2020, driving prices up and forcing mills to import logs and sawn timber.

Despite these challenges, the sector remains positive, said Mr Glennon. ROI looked on course to be the only EU country to grow exports in 2020 and its economy grew by 3.4% last year.

With so much of the conversation being around housing starts driving softwood demand, it was appropriate that the final presentation was given by Noble Francis, economics director at the Construction Products Association.

Mr Francis said that consumer confidence was at its highest level since February 2020.

“Households are more confident about their own finances, the overall economy and about making major purchases,” he said. “The Bank of England estimates that households have accumulated £160bn-worth of savings over the past year – the key to growth will be how keen consumers are to spend it.”

The construction sector had experienced a V-shaped recovery, said Mr Francis, and the severity of the Covid impact depended very much on sector. Infrastructure was the least affected, while private housebuilding had suffered a 60% decline in April 2020. This, had recovered quite quickly, particularly when developers saw house price inflation.

Private housing RMI lost 40% in April 2020 but by October was 20% above pre-Covid levels. It has slowed since then but is still substantially higher than in January 2020.

The main driver of construction growth has been in housing, with strong demand boosted by government incentives. However, while demand for housing is strong, the appeal of flats has diminished.

Summing up the CPA’s predictions for 2021, Mr Francis said private housing was expected to be up 15.5% and private housing RMI up 10.1%. A 14% increase in total construction is expected and even if output remains at January levels, total construction will be up 9.1%.

The key uncertainties, he said, include:

  • The two-speed housing market – high demand for houses, not flats;
  • changing spending patterns – RMI and DIY are doing well but as travel, holidays and eating out become possible, consumers may revert to normal spending;
  • government policy reliance – much of the growth is driven by government incentives;
  • commercial space demand and re-use – some workers won’t return to their offices;
  • the effect of rising costs – insurance, imported product prices (not just timber) and delayed project deadlines;
  • imported product supply issues (not just timber);
  • labour supply issues.

In conclusion, Mr Francis said that construction is considerably better off than most sectors of the UK economy.