While the home market has lost some of its momentum, northern European exporters have experienced strong global demand and steady domestic consumption. Log prices have been rising recently and sawmills need to reflect increases in both euros and Swedish kronor.
After a continuous period of strong trading since the turn of the year, some UK merchants are expressing concerns over a weakening in demand and have reverted to a more cautious approach to purchasing to keep inventories trimmed. This recent lull in trade has led to an even more competitive environment amongst bulk distributors, and a lack of resolve among some to implement increased prices in accordance with the fall in sterling and higher replacement costs shippers require. In contrast to the tentative demand situation in the UK, relentless and immediate pressure is bearing down on sawmills to improve export prices as their fibre costs have been rising sharply, even for small diameter logs. As a result, the mills need to reflect these increases in their selling prices sooner rather than later to avoid any margins being squeezed too much.
Generally speaking, whitewood log supplies have improved since September, but some Swedish and Latvian mills still need to include around 50% redwood to fulfil buyers’ carcassing specifications. Swedish whitewood log prices rose during Q3 by 2% against Q2, but in Latvia, prices have been climbing at a steeper rate, increasing by more than 10% at the roadside since June. Because of the dip in availability of Latvian whitewood it has been trading at a premium over pine, but price levels in both species have been rising and continue to firm.
In the redwood joinery sector, many contracts are running late, holding back agreements for new business as volumes from Q3 are only just arriving. There is a wide global market vying for quality-bracked redwood as opposed to structural, and prices have been rising steadily. This, in turn, is forcing the UK to keep pace with prices paid by other countries or British buyers will lose volume. Payments from North African markets have become more reliable and shippers are confirming business in the MENA (Middle East & North Africa) area, which is currently estimated at 13 million m3, has a future growth prospect of up to 25% in the next 7-8 years.
The top exporters to the MENA region are, in order of volume, Russia, Sweden and Finland. These sources have traditionally specialised in UK specifications but, as demand increases from markets further afield for higher qualities, a notable volume of redwood and high-quality spruce has been sold away from the UK and Europe. As one contact linked to a Scandinavian forest product group commented, “global markets are affecting both the UK’s allocation and shipment times because returns are much better elsewhere”. Russia, the main exporter to the region, supplies around 23% of that market at over 9 million m3, making it 36% of Russia’s total exports.
Looking more closely at the supply chain with the help of data from the UNECE Timber Committee’s October meeting in Warsaw, Russia continues as the largest softwood exporter in Europe with last year’s actual volumes at 24.89 million m3. That is estimated to increase by 7% to 27 million m3 for 2017. Russian softwood production is expected to reach 36 million m3, which is more than Finland and Sweden put together at 30.3 million m3.
Last year, Sweden exported 12.99 million m3 from an estimated production of 18.1 million m3, and in 2017 it is projected to have exported 13.1 million m3 by the year-end. Sweden’s domestic market is also very strong and consumes over 5 million m3, more than 28% of its own softwood production (fig: adjusted for 400,000m3 imports).
Finland is projecting an export volume of 9.03 million m3 for 2017, just over 75% of anticipated production. The Finnish annual growth rate is high enough to allow for a sustainable increase in logging volumes of a further 5 million m3 per year in the round-up to 2020. Finland has experienced a noticeable rise in softwood consumption this year and a volume of around 3.5 million m3 is expected to have been sold into the domestic market, 7% more than 2016.
Softwood exports from the Baltic states are projected to reach 4.45 million m3 in total this year, with Latvia being the largest exporter at 2.8 million m3. However, the demand for Latvian softwood could well exceed the estimates, as imports into the UK had already risen by 15% in the first half against the same period last year although in the second half recent data shows that the rate of increase has fallen back to approximately 7%. Domestic consumption in the Baltic region is led by Estonia at 2.25 million m3, while both Latvia and Lithuania are well below 1 million m3 each. As a single country, Germany consumes the most softwood in Europe at just over 19 million m3, with the UK in second place at an estimated 9.96 million m3 made up from around 35% home-grown production and 65% imported. German production is substantial at around 22 million m3, but exports amount to less than 35% and Germany also imports over 4.5 million m3 to satisfy softwood usage.
The total European softwood production volume is estimated to be around 110.7 million m3 with Russian mills (including former CIS units such as Belarus) accounting for a further 41.78 million m3.
Global demand within UNECE reporting regions, which excludes China and South America, is expected to reach 207.24 million m3 this year. The largest consumer of softwood within the reporting nations is the US which absorbs an average of 80 million m3 per year. The US produces 56 million m3 but imports around 27.5 million m3, and until now has sourced the bulk from Canada, but at the start of November a long-running major trade dispute with Canada over alleged subsidies has reached a climax, with serious consequences for Canadian mills on both the eastern and western seaboards.
The US Department of Commerce (DOC) has made a judgment that Canadian imports have been subsidised to the detriment of the US sawmilling industry and it has started implementing proceedings to apply antidumping and countervailing duties on Canadian softwood. The decision taken on November 1 states that Canadian producers have been selling below “fair value” within the range of 3.2-8.89% and Canada’s forestry has “subsidised” fibre to its mills at a level of between 3.34-18.19%.
The final determination on tariff levels relating to Canadian exporters will be made on December 26 by the DOC and US International Trade Commission for implementation. This will mean US importers of Canadian softwood will be required to pay deposits against duties which will be levied against Canadian companies depending on their individual regional assistance from Crown land.
PRICE IMPACT
In protecting the home sawmilling industry the US government will cause prices to rise for construction companies and ultimately homeowners. In the worst case the combined levies will reach more than 22%. The rise in softwood prices in the US is a key factor in attracting supply from Europe, and many of the larger producers are already shipping in large and rising volumes. However, the US is not only targeting Canada, and a global set of tariffs for all imports is under consideration which may find duties imposed on European timber exporters.
Product classed as finished will be exempt, so I-beams and other fabricated products will avoid cross-border penalties. These engineered wood products are used widely in North America and are growing every year as a replacement for solid sawn and planed softwood beams.
A new force in the softwood industry is the rise of cross-laminated timber (CLT) which is being seen by engineers and designers as the building product of the future. Between 2017 and 2020, European CLT production is predicted to rise from around 600,000m3 to 1.75 million m3 and demand is expected to exceed supply for each year.
There is no upper limit on the growth potential for CLT, and it has already found success in Japan where the government is actively promoting its use to the point that each regional authority is required to have constructed at least one building using CLT by 2018.
The favoured species for CLT manufacture is spruce and the lamellae are dried to a lower moisture content than carcassing, to an average of 12% moisture content for gluing, and the sections used are graded to C16/24 depending on the specification. The estimated volumes for the next few years are not high in comparison with global softwood production, but at some point they will make an impact on the supply of structural whitewood available.
