Baltic shippers are suffering from new and unforeseen pressures which have resulted in large volumes of softwood being stranded on the quayside.
Over the past six weeks, a high proportion of shipping lines have been diverted away from carrying timber in favour of transporting grain. Ship owners are able to realise better freight rates for grain, and they are taking advantage of the situation while it lasts.
The absence of suitable vessels has become an acute problem in the Baltic region, and exporters will have to wait until the shipping lines have exhausted the grain cargoes. A number of agents have confirmed that large volumes of UK-bound softwood are amassing in Baltic ports such as Riga, where the queues for cargo vessels are increasing.
This problem is creating cash flow problems for many of the exporters who are unable to raise invoices as the goods have been sold under fom or fby contracts.
Those UK importers buying directly from the mills on a ‘free along side’ basis are liable to pay the producers for the goods as they arrive at the ports. Like the exporters, they are being forced to finance the stock at the quayside until cargo space becomes available.
In addition to diverting vessels to carry other types of cargo, there are other considerations affecting ship owners’ decisions whether to sail to the UK.
Stringent criteria
The UK authorities have started applying more stringent criteria to ships entering British ports, and some shipping lines are concerned that vessels will be delayed while the ship owners try to comply with the required standards and documentation checks.
Sailing to Black Sea ports is seen by some as less problematic and, consequently, there are ship owners deliberately avoiding cargoes to and from the UK for an easier time.
These shipping delays will accentuate any shortages of Baltic timber in the pipeline and clear a high volume of landed stock.
There is still an underlying lack of sawlogs at many of the exporting sawmills, chiefly in whitewood, but there are some areas where redwood is also in short supply.
Log prices in Latvia have been rising since the summer and, in some cases, spruce is reported to have risen by as much as 15%.
At current selling levels, some of the mills are finding it uneconomic to produce sawn timber and, as a consequence, have closed down production.
Global demand
Global demand for whitewood has been rising steadily during the year, and this has affected other producers’ attitudes towards price levels and the market.
One large Swedish shipper said that nearly all of his whitewood production, from unsorted right through to sixths, had been sold into central Europe with nothing available for UK buyers. Prices on the Continent had proved to be more attractive, though the British market for redwood joinery was still considered to be one of the best. Another contact said that many Continental buyers had already covered their whitewood requirements for the first quarter of next year, and price increases as high as 5% had been agreed over and above current levels. A southern Swedish sawmiller confirmed that he was sold well into the new year and said that most of the mills in the area were price conscious and looking for higher revenues against new contracts.
European economy
However, the general economic situation in central Europe has been relatively poor and this has affected construction activity, resulting in reduced consumption of softwood. Forecasts predict a reduction of around 1.5 million m3 in use for this year – following a reduction of around 1 million m3 during 2001.
Even Germany, Europe’s largest consumer of softwood, has experienced a significant downturn in housebuilding activity and demand for timber has been reducing over the past two years. This is compounded by increased consumption of domestic production. Consumption of imported softwood peaked in 1999 at around six million m3, and had fallen from 5.9 million m3 in 2000 to 4.8 million m3 by the end of last year. A further decline is predicted this year to 4.6 million m3.
In spite of these statistics, delegates returning from the Swedish timber conference held from November 28-29 in Karlstad, spoke of the optimism held amongst Swedish sawmillers over trading prospects for next year. They say that, in spite of a bullish attitude over the market, there is also a realistic view being taken on prices.
Swedish shippers are only too aware that steep price increases have always preceded a sharp fall in the past, and this time around there is an air of determination to maintain the improvements that have already been achieved and to avoid killing off demand.
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“Swedish shippers are only too aware that steep price increases have preceded a sharp fall in the past, and this time around there is an air of determination to maintain the improvements that have already been achieved ” |
Looking to the US and Japan
With the economic situation in Europe looking fairly weak, Baltic and Nordic shippers have been pursuing the markets of Japan and the US. Although these relatively new markets have been yielding better overall returns than the traditional European buyers, they have also proved to be volatile.
At present there are some very high volumes of European whitewood, mostly CLS, hitting the US east coast. These are in the form of unsold cargoes, but timber prices in the US have been weakening rapidly, and shippers from both the Baltic and Nordic regions now are watching their cargoes crash in value before buyers can be found. This change in fortunes has influenced some of the smaller mills to stop in their tracks and scrap their applications for licences to grade to North American standards.
Redwood prices have been gaining ground during the year and base levels have increased by approximately £6/m3, with a further 3-5% increase forecast to take effect during January/February 2003.
Although redwood log supplies have not followed the same pattern of supply and demand as those of whitewood, there are raw material shortages at some of the Nordic mills, with significant gaps appearing in specifications now being offered.
Some of the more progressive shippers are aligning their productions to customers’ needs by cutting sizes for the end use rather than for general specifications usually shown on traditional stock lists.
One significant Swedish producer commented that they were concentrating on cutting sections “fit for the purpose”, and deleting larger sizes such as 63×225. Smaller and specially-seasoned dimensions are being produced with the intention of providing greater stability and better performance when used as joinery and furniture components.
This relatively new sawing and kilning technology has diverted volumes from general merchanting type specifications into the special product ranges. Only a few years ago, there was a glut of middle-cut sizes in fifth quality, which drove redwood prices down. Now these sizes are becoming difficult to obtain.
Russian supplies
Buyers of Russian redwood have been commenting on some noticeable changes in the market place and in the attitude of sellers.
This year, the Moscow and St Petersburg timber markets have continued in strength far longer than on previous occasions, with demand from the building and renovation sector at an all-time high.
Also, cross-border sales of logs into Finland are reported to be buoyant and prices have been showing better returns than those for sawn goods. The price of Russian productions has been edging up slowly, and UK distributors have been reflecting the higher levels when selling from their quayside stocks.
One company reported that due to adverse weather in the Archangel region, volumes were drying up quickly. He also said that demand for the middle-cut sizes in fourth Russian redwood had increased because buyers had switched from Scandinavian fifths because of lack of availability.
The sizes 50×100-150 were being increasingly sold from specifications on a forward basis rather than buyers waiting for the stocks to land in the UK.
To summarise the current supply situation, all pointers are indicating further price increases, but demand in the first quarter will be the critical factor in determining how far prices can rise in what is likely to be a delicately balanced market.
There is mixed opinion amongst UK softwood importers over longer-term prospects for a rising market, but there appears to be growing acceptance that prices are unlikely to weaken, and most seem resigned to the concept of further increases in the new year.
Continuing demand
One UK terminal operator said he was confident that demand would continue during the first quarter of 2003, and that the price increases which had been achieved over the past two months could be built upon, but having the right specification was the key issue when selling.
Although prices have now risen through most of the supply chain, there has been little evidence of their being applied within construction and housebuilding. The old mentality held by the merchanting trade of the fear of losing turnover still seems to exist.
This is more prevalent within the softwood trade than any other, a sentiment that everybody readily agrees with, but nobody is prepared to remedy.
