Summary
¦ Ice has delayed some shipments to the UK.
¦ Russian prices are now on a par with those of Sweden and Finland.
¦ Birch plywood is in demand.
¦ Russia’s first quarter softwood exports are expected to be more than 40% above last year.
Several shipments of Russian wood have been ice-bound at the port of St Petersburg due to freezing conditions in the Baltic Sea and Gulf of Finland. Some UK receivers have been waiting up to eight weeks for cargoes that have only just started to arrive, as temperatures have now risen enough to open navigation. Further north in Archangel, the White Sea region, there have been fewer problems and the area is serviced by large ice-breakers that keep the seaways open.
These delays have frustrated UK importers because demand for redwood increased during April, and sizes such as 38×125 used for decking were in short supply.
Several contacts report that business has cooled off during May although they still remain optimistic that demand in both the second and third quarters of 2011 will be equal to, or better than, last year.
Forward market
On the forward market, before even discussing prices with shippers, UK importers face a problem with sterling’s continuing weakness. The downward swing which recently hit a low of €1/£0.90 has potentially pushed prices up without any actual price increase from shippers. In the first week of May, the pound dropped by 7% from the current rolling 90-day high, and since the beginning of January, it has dropped 10% against the euro.
Shippers across northern Europe have been applying price increases of €5/m³ for May/June and €8/m³ for July redwood shipments. These will start to kick in shortly, but in the UK they will combine with currency adjustments. Whitewood production is attracting an even higher increase of €7-10/m³ supported by strong demand from the Continent which included record shipments to the Netherlands in April.
In the UK market, the selling price of Russian production has traditionally trailed behind that of Nordic brands, but in the last 12 months that’s changed. With a diminishing number of Russian timber stockists operating in the UK, and lower overall volumes held on the quayside, prices in all equivalent grades including Unsorted, Fourth, Fifth, B and C, are trading at the same levels as Swedish and Finnish production. In some cases, to align themselves with Nordic producers, Russian sawmills have revised their bracking systems and adopted the same grading criteria.
A number of discounted Russian specifications were on offer to European buyers as a result of the unrest in the Middle East and north Africa. These were cargoes that were cut for those regions but could not be shipped at the scheduled time. Contacts now confirm that these volumes have cleared and shipments to the Egyptian port of Alexandria are returning to normal. Selling prices to the region are rising.
Plywood demand
Global plywood demand combined with Japan’s anticipated requirement for post-earthquake reconstruction is expected to take up all current production capacity. The regular UK importers of Russian birch are working on a lead time of between 8-12 weeks, depending on specification. UK demand has improved over last year, and landed stocks are said to be lower than at the same time last year, with prices firming on a quarterly basis. Buying prices have risen by around 15% since the end of December.
In the first quarter, Russia’s global exports of wood fibre rose significantly, and sawn softwood is expected to exceed last year’s figure by well over 40%, with an increasing volume of Siberian production being transported to China.
UK buyers have reported a general tightening of Russian sawn timber supply, and forward negotiations on specification, price and shipment times are becoming protracted. With prices increasing in other markets, shippers are taking a bullish stance, and importers are finding little room for price negotiation.
Log competition
Since the days when Russian wood shipments were combined under the banner of Exportles, some independent producers have flourished while others have faced cash flow problems and failed. For the survivors, rising global demand is presenting new opportunities. The tax on Russian log exports is being relaxed, and sawmills will see significant competition for logs from buyers in Finland, China and Japan. This will ultimately drive up fibre costs for Russian producers.
One softwood agent commented about some producers’ current business philosophy. “There are changes towards a banker’s mentality, and in some cases stocks are being kept too low. If the resulting specifications are poor, this then acts as a restraint against the mill reaching its full potential,” he said.
At the end of April, prime minister Vladimir Putin said that efficiency levels in government institutions, commerce, and industry needed to double or even treble, with productivity rising accordingly. A study comparing Russian efficiency against that of the US concluded that management needed to generally improve its effectiveness, and output needed to rise, as opposed to pointing continuously towards the need for extra investment.
If the Russian sawmill industry surrounded by its immense forest resources, were to take up Mr Putin’s challenge, then it could set a standard that other countries might find difficult to follow in terms of both quantity and quality.
