The elusive balance between supply and demand still haunts the UK trade as shortages in volume, together with gaps in specifications are causing headaches for both importers and merchants alike.

This situation follows on from when the coronavirus restrictions were first being implemented and the industry expected a severe downturn in trade. Instead of a downturn, there was a sharp increase in consumption, and since that time, supplies of strength-graded softwood have fallen short of demand. Under present market conditions, there is very little sign of the gap narrowing and C24 in particular has been rising in price along the supply chain.

The story does not end there, because many sawmills are fighting their own battles against shortages of log supplies, which is hampering production and consequently delaying shipments. The main shortage of fibre is in the Baltic states where many Latvian producers have been on short log rations for several months. Private growers who supply around 40% of the market have reduced cutting due to falling pulp prices, and while the lower grade logs have been difficult to sell, they have to be cut along with the A and B grade logs so the situation has caused a reduction in forest extraction.

The availability of fibre has been better from the Latvian State forests, but those volumes alone are insufficient to meet current demand from the industry.

The problem of log shortages has been further accentuated by the situation in Belarus, where cross-border exports have slowed due to the current political climate combined with the spread of Covid-19 denuding some of the workforce. The pandemic has reached many of the remote areas across northern Europe, even into small communities in the Ukraine. As this report was being prepared, sources in Riga said new health and social restrictions were likely to be announced in week commencing October 26 across Latvia, which could place restrictions on the population.

With logs in short supply, neighbouring forest areas in the Ukraine, Karelia and parts of central Russia report an inward flux of Baltic sawmill representatives on a quest to obtain logs from any available source to keep the saws running to try and satisfy existing commitments.

Some Baltic producers have been avoiding new business to allow a period of catching up to take place. They have also been spreading output across their regular customer base by allocating volumes in a bid to satisfy buyers at least to some degree. This has also led to the need for flexibility by UK customers, who have had to accept the specifications available rather than their usual tailor-made contracts.

The shortage of logs has come at a price for the mills because new log supplies have been on the market at higher prices than originally agreed or forecasted. This has squeezed margins and forced shippers to ask buyers for an increase in contract prices or face little-to-no margin in a strong and improving market.

Several producers have found support from buyers who understood the effect of rapid log increases, knowing it would make it difficult for mills to ship without some help. The buyers compromised on this issue just to get supplies flowing while demand remains high.

The supply of carcassing from Sweden is influenced more by wider global markets than being mostly focused on the UK, and in particular the extraordinary levels obtainable in the US for strength-graded wood.

All the large producers allocate a percentage of supply to each of their export countries, and although demand is currently strong in the UK, combined with rising prices, there is still little incentive to divert supply from other markets.

The Swedish mills are supplying the UK at what might be thought of as normal budgeted volumes but, with few exceptions, they are not expected to increase volume to the British market.

In the joinery grades, demand has been steady with prices firming in increments but not at the same pace as structural timber. Redwood decking profiles and blanks have been in short supply with UK merchants calling for more volume to meet customer requirements.

As Nordic redwood fifths are now trading below carcassing prices, buyers who can get them in 47mm thickness length packaged (rather than the standard 50mm) and have a licence to strength-grade have started selling them for building timber instead of machining them for the moulding racks.

Looking at the pattern of softwood imports into the UK, the last confirmed by the UNECE COFFI was for 2018 at 6.26 million m3. Estimates for 2019 were placed at 6.79 million m3 with a projection of 6.72 million m3 for this year. Other sources already collated data to confirm last year’s total to be just under 6.4 million m3, a downturn of 396,000m3 from the estimate.

Most of the drop in 2019 occurred from October onwards as normal, but the trend was visibly below 2017 and 2018. In 2019 the market crashed, causing a dramatic fall in prices, and right through Q3 and Q4 importers and merchants alike divested themselves of stocks as far as they could. This move will have been reflected in the downturn in demand for imports in Q4 last year.

So far this year, market prices of carcassing have more than recovered from 2019 and are trading at record highs when measured in sterling.

Sweden’s total softwood exports over the past three years have tended to be fairly steady at around 12.5 million m3. Latvia declared exports of 2.9 million m3 in 2018 and projected a figure of 2.6-2.7 million m3 for this year.

Sweden still remains the largest supplier to the UK, consistently taking well over 40% of the business, while Latvia has established itself as ranking second with just under 20% of British imports. The figures include all forms of softwood from joinery grades, C24 and TR26 right through to landscaping timber and agricultural fencing poles.

Following Q1 of this year, UK softwood imports took a steep downturn during April, dropping by almost 25% against last year. But by mid-summer imports rose sharply, driven by the unexpected strength in demand which actually started during the Covid-19 lockdown.

At that time around July, softwood imports still appeared to be down by some 20% below 2019 volumes. The pattern follows the shipper’s information regarding log supply, and also the knock-on effect of deferred or cancelled contracts by UK importers during March and April.

It is undoubtedly the raw fibre availability that will dictate what volumes are shipped from Latvia by the end of this year. Total softwood exports this year from Belarus are projected to be 3.65 million m3 and 3.19 million m3 from the Ukraine, how much of that fibre will be acquired by Latvian producers will be key to the production of certain product types.

Despite the current gaps in UK supplies, most buyers will see that controlled supply, particularly from the Swedes, is a responsible stance even if it is because they are following better paying markets, in other words following the money.

With Covid-19 restrictions causing the closure of parts of the UK economy for a second time and Brexit trade negotiations taking place simultaneously, actual consumption from end-users could drop.

With the rising tide of unemployment and the long-term worries from the massive government subsidies being used to prop up business sectors, all traders are adopting an underlying caution in case the current bubble bursts without warning