In common with all softwood markets, demand for Russian timber is outweighing supply and this is, inevitably, driving up prices. In Europe, North Africa, and through to the Middle East, buyers are consistently searching for softwood cargoes, providing competition for UK buyers.
Although UK importers have doubts about end user demand, they are acutely aware that there are growing gaps in specifications. Where importers have delayed making a purchasing decision they have found that, when they are ready to buy, the volumes have already been sold. As a result, they are being forced to book as far ahead as they can, and at shippers’ prices.
Supplies from Russia tend to vary between the mills at present, some having more logs and higher production than others, and there are also regional differences.
The main force driving Russian exports is price; the higher it is, the more likely shipments will be made. In some cases, buyers have been forced to renegotiate the previously agreed price just to get the supply. Importers have also had contracts flatly reneged on and, in spite of non-performance clauses, the reality is that there is very little enforceable recourse.
In the Russian whitewood market, supplies of unseasoned sawn timber are the most difficult to source as many mills are concentrating on kiln-dried material. Where unseasoned is available, there is stiff competition between buyers, and many other markets are paying more than the UK.
Domestic prices
Even in the Russian domestic market, prices are around U$20/m3 ahead of the equivalent price paid by British importers. Also, buyers are collecting the goods from the mills as a true sawfalling product, without grading turnouts and end trimming. Since the start of the year, unseasoned prices have leapt by an equivalent of £14/m3 and this might double by the end of the year if the current trend continues. As well as the UK, France and Germany import unseasoned whitewood, and German importers in particular are paying extra premiums to secure their requirements.
Kiln-dried whitewood is in high demand from European markets; in Holland the number of building permits issued rose by more than 30% in the first six months of this year.
Both the German and Dutch markets are also buying structural dry-graded whitewood – again at a higher price than the UK. Strong demand from central Europe has attracted shippers from Russia, Latvia and the Nordic region; consequently reduced volumes are being allocated to the UK. There are still a number of substantial enquiries from large European buyers, one notable item being 22mm wind-bracing, which buyers are finding difficult to obtain regardless of price.
Archangel mills are still short of logs following the problems caused by the low river levels. Although supplies have picked up, production has been disrupted to the point where it seems unlikely the sawmills will be able to catch up on contracts for the rest of this year. One contact commented that some mill owners had partially closed their lines and were using part of September to do maintenance. This would continue until the log supply improved sufficiently for them to run at a viable capacity. Some mills have closed their order books for the rest of 2006, but those that are still able to offer have indicated prices will rise month by month. In most cases shippers are reluctant to declare selling levels beyond October, preferring to wait until the market trend becomes clearer.
In the St Petersburg region, production is generally running normally, but demand is outstripping supply and, again, price is the dominant force in securing goods. One shipper said the market had been continuously developing and new markets were emerging. The whole of his production was now being sold to South Korea where the price and grading requirements were more favourable.
For redwood, a similar picture emerges of shortages. In the UK there has been a recent anomaly where landed stocks of middle-cut 50mm have risen sharply, causing temporary overstocking among some importers. This has been attributed to a backlog of vessels arriving in July and August. What makes the picture somewhat confused is the fact that there are other importers in the opposite position, being in urgent need of 50×125/150 in 4ths or ‘B’ grade. It is likely the imbalances will be rectified during September, particularly as Nordic specifications are tending to lack significant volumes in these sizes, dictating that demand for Russian should become more pronounced.
Prices of redwood have been rising steadily since the beginning of the year, now standing at around 20% higher than in the first quarter. Certain items such as the narrow widths in unsorted quality are tending to ‘stick’ a little, and some traders have circulated special offers to induce merchants to stretch beyond their normal 4ths and take a better grade.
Looking to the next quarter, Russian redwood shippers are expecting to apply a similar price increase to that of whitewood, but there is a reluctance to fully address the situation at this stage and only a limited number of contracts have been offered for October shipment. In the north, supplies of redwood are expected to improve from October, but there will be some shortages in specifications, especially thicknesses of 32mm, and widths of 225mm.
Price hikes
As well as shortages in sawn timber, the export of Russian softwood logs continues to tighten, and cross-border trade with Latvia is reported to be slowing. In spite of volumes of home-grown logs available, Latvian sawmills still rely on imports to obtain the required quality and specifications. The sawmills face a further problem as recently a tariff was imposed on all exports from Belarus, and reports speak of huge tailbacks of vehicles at the borders where customs officials are trying to ensure duties have been paid on each load.
The reduction of softwood available to the UK has made life difficult for agents who are struggling to fulfil customers’ requirements. Turnover patterns have altered widely against previous years, and some months are now falling well below normal trends.
Importers, in turn, are concerned at the shortages, but have even greater fears over the rapid price increases. With some Nordic shippers talking of a further rise of 20% for whitewood by the end of 2006, many fear the figures are becoming too high, too soon. In the past the softwood trade has seen some spectacular cuts in both price and demand after such a rapid build-up. With this in mind, even the Swedish quay exporters are taking a cautious approach to longer-term commitments.
The big question is can this pace and level of rises be sustained? Much will depend on global demand but, as far as the mills are concerned, the answer is yes.
