Softwood shippers are reporting weak demand from most European markets with little sign of an upturn on the horizon. This is leading some exporters to revisit markets further afield such as Asia, where demand is growing and prices and margins are higher.
In the first two months of 2013, Finnish export volumes were almost 26% higher to countries outside Europe, with Japan taking the highest volume of 157,000m3, closely followed by Egypt at 140,000m3. In terms of growth, China increased imports by over 200% in the period to 65,000m3, becoming the third largest importer outside Europe of Finnish softwood.
In the same period, Sweden’s exports to Europe were almost 10% down, to 1.11 million m3, but Asian markets grew significantly with a rise in trade to Japan of around 7%, making it the single largest importer of Swedish softwood outside Europe and second to the UK on a global basis. Swedish sales to Europe were still over 40% higher than to other markets, but with the global rise in demand, shippers are in a position to offer more volume elsewhere.
Although the UK is still in the economic doldrums, it is thought to be performing better than other European countries, such as Holland and Belgium, where construction has become virtually non-existent. UK carcassing prices have advanced since the turn of the year, but continue to lag behind replacement costs due to fierce competition between importers and distributors. Selling levels are also being held back by the increasing volume of home-grown C16 dry-graded, which is priced below imported material.
As well as influencing price, the advance of home-grown production in the UK has dented volumes of imported softwood. To counteract the situation, exporters have increased the percentages of C24 with little-to-no premiums in order to keep a foothold in the market.
Price speculation
Some shippers believe the UK market price level has already been reached and will now plateau, while others still see possibilities of another €10/m3 for the third quarter, possibly driven by global demand. It is a fact that other markets are paying higher prices than the UK, but shippers still regard British buyers as consistent and reliable payers, and several have refrained from applying the further increments they expected to achieve for May and June shipments when quoting for new contracts.
Diverse views on pricing in the Baltic states indicate an uncertain and short-term market. One Latvian shipper was adamant the trade would see a lift of €6/m3 in June followed by the same again in July, while another, who had expected price rises, said he now believed increases were unlikely. Buyers continue to lack confidence, and stability will only be achieved if there is a genuine and noticeable increase in end-user demand.
Swedish shippers selling to the UK have borne the brunt of a strong krona which has pushed up prices in sterling. In March, sterling hit a five-year low against the Swedish krona when the spot conversion rate was around £1/SKr9.59, a difference of 26.04% from the high reached in mid-June 2009 when the value of £1 was just over SKr12.96.
There was some recovery of sterling in early May, as this report was going to press, equating to around 5.53%. This should help Swedish shippers to move towards a more workable situation provided the trend does not lapse.
Sterling’s value against the euro over the past has also swung significantly, but at different times from the krona. In January 2009, sterling bottomed out, almost reaching parity at £1/€1.07 after a five-year peak in October 2008 of £1/€1.28, a loss in value of just below 16.5%. After a full recovery by the end of July 2012, it was sitting at around €1.18 on May 10 – down 7.5% from the peak. These movements in exchange rates have favoured producers dealing in euros and this has given Latvian mills a competitive advantage. Even so, Latvian sawmills would still prefer to see a stronger pound, especially as most UK contracts are fixed in sterling.
The recent drop in Eurozone interest rates to 0.5% announced by the European Central Bank on May 2 could help to improve sterling’s value against the euro, as the interest rate now matches that of the Bank of England. Lower interest rates will affect inward investment, and this could combine with deep-seated economic problems in the Eurozone to hold back further gains that the euro might otherwise have made over sterling. In the US, a recent surge in housing demand combined with the Japanese posttsunami reconstruction programme has given the Canadian forest products industry a strong boost. On top of this, demand from China is rising, and the fallout from mill closures made just after the housing bubble burst in 2006 has left the softwood industry lean and without a production surplus.
As a result, softwood prices have risen in the US and on both Canadian seaboards. Sawmill profits have been rising and share values of forest products companies have climbed sharply, in some cases more than doubling.
The prospects of stronger demand in North America have rekindled interest from European shippers, and also drawn in investment,
notably from Austria-based Klausner, which is planning a 700 million board ft/year sawmill in South Carolina. Klausner has had a presence in the state since 2000 when it opened an office in Myrtle Beach as part of an agreement to export lumber to the US. With improving prospects for carcassing, the joinery market should also see improved demand, but in the UK contacts are still reporting a highly competitive climate in which every order has to be won on its own merits.
One importer highlighted a return to demand for Russian softwood specifications in both spruce and pine, and said enquiries were stretching through to the end of the third quarter. He also reported that buyers were looking more closely at Russian grades because of dissatisfaction over a drop in bracking standards of some Nordic productions. Complaints centred on an increase in dead and loose knots, affecting both 5th and 6th redwood boards.
Decking stalls
Several contacts said that the decking market for standard treated profiles had not come to life as yet, and volumes were down. In the merchant sector, there are reports of a higher level of interest in composite decking products and boards featuring anti-slip properties such as inserted grip strips. Weaker construction activity in the UK has affected cladding markets, reducing what had been widespread consumption to regional pockets of activity. Market share has been further eroded by growing demand for non wood-based products. Some contacts reported that they had received enquiries for commercial projects using timber cladding and were following up recent quotations, but no start times had been decided.
Global prospects for the softwood market appear to be improving despite sluggish demand in the UK and lower activity in mainland Europe. Supply is under control in most major producing countries, and raw material is still tight in many areas. The strengthening US market and increasing demand from Asia, North Africa and the Middle East will continue to offer new sales opportunities. As one sawmill export manager described it, "we are on the turn; current production is becoming out-sold and from a difficult first quarter we are seeing things steadily improving"
