One importer summed up the hardwood sector’s mood. “It’s not,” he said, “going to be a bumper year.
“Positivity has drained from the market,” he continued. “There’s zero speculative buying. Business is flat and indicators are that it’s not going to get better any time soon. We’re all looking for reasons why the market should improve, but they’re hard to identify at the moment.”
Another importer-distributor agreed business was “unexciting” across the board.
“It’s not just the top end. A company doing cheap and cheerful laminates told me they were struggling too. We’re all in the same boat,” he said.
No-one said it was desperate stakes for the sector at this point. Companies remain in profit. However, said an agent, it’s not a time for risks.
“We’ve had good weeks when we’ve thought business is turning, but it’s died away again,” they said. “Overall 2019 has been a downward slope. The first quarter was quiet, the second quieter. Customers are buying, but only as and when they need. Every buying decision is scrutinised.”
A continental-based international trader said their wider European business was healthy, with construction pick-up in several countries driving demand, notably Germany where the building sector forecasts 8.5% nominal sales growth this year. French construction is also predicted to grow 2.5% this year, and in TTJ’s French Focus last month, leading hardwood companies reported investing in storage and production capacity to meet demand. There are positive noises from Belgium too, where furniture sector capital spending grew 18% last year.
Overall the international trader reported a robust first half and said they “head into the second in a good position”. In the UK, however, business was problematic. “Trade has become very competitive, with some businesses offering African timbers at very low rates, that will be difficult to replace going forward,” they said. “There are still some large projects around, but others have been put on hold due to market uncertainty.”
Companies universally attribute trading conditions to continuing nervousness over Brexit.
“There really can’t be any other factor behind market caution,” said an agent. “Fundamentals are still strong; jobs growth is continuing, average earnings are forecast to rise 3.6% this year, interest rates may rise, but from a low base and inflation is steady at 2%. But businesses and consumers just aren’t buying, and it has to be due to Brexit, with the Tory leadership contest compounding loss of confidence. The evidence is across the market place. Retail sales saw their sharpest fall in May for a decade and first half car sales were 5% lower. The Construction Products Association has also downgraded its 2019 forecast for building output growth to just 0.4%. Especially concerning for the hardwood sector are bleak prospects in retail construction, forecast to contract 10% this year and next.”
Adding to UK hardwood business frustration is not knowing how best to prepare for Brexit, at least in part due to lack of pointers from government.
The continental-based supplier had the same complaint.
“It’s unclear how business relationships will be affected,” they said. “Notably, will UK businesses become ‘operators’ if importing from EU countries, even if the timber is EUTR compliant when arriving in mainland Europe?”
A bigger importer holding large stocks “as a matter of course”, said they’d be insulated from any customs or port delays post-Brexit.
“We wouldn’t be affected for four or five months, by which time we’d hope any administrative teething troubles will be resolved,” they said.
Others said they were “just sitting tight” and keeping in close touch with EU suppliers.
“We’re just keeping a rein on everything and not acting on hunches,” said an importer. “Buy more stocks as a buffer and the pound weakens in the event of ‘no deal’ and you’re in credit. If it strengthens on a softer Brexit, you’re left with expensive stocks on your hands. We saw companies getting their fingers burned when they bought more timber against Brexit happening in March. They’re still trying to offload the surplus, which is why there are some silly prices around. So, as far as possible, we’re buying as and when we need.”
Bigger businesses say they also have the resources to cope with the increase in administrative cost and time Brexit is expected to cause importers.
“Having to put imports from the EU as well as elsewhere through due diligence under the EU Timber Regulation, or the UKTR as it will be post-Brexit, won’t be an issue for us,” said one. “We applied due diligence to everything anyway, partly for our own reputational and CSR assurance, partly as we still aren’t confident the EUTR is uniformly enforced across the rest of the EU.”
However, it’s felt some smaller companies may be overwhelmed by the increase in bureaucracy post-Brexit.
“I think we’ll see more importers, which buy small quantities as and when via EU suppliers, buying from UK importers and agents instead and letting them do all the paperwork,” said an agent.
On price, one importer reported weakening in Asian species and temperate hardwoods, other than higher grade US white and European oak. But, according to most, “stability” is the order of the day.
“A gap has opened up between certified and third party verified legal African and nonverified,” said an agent. “But otherwise there are no definitive trends up or down.”
There seem to be more issues in supply. An importer reported that there is “more European oak sloshing around” than last year, which is why prices from some suppliers had come off three or four per cent recently.
“Prices may harden through the summer, but right now there are particular bargains in 1in and 2in, despite rising log prices,” they said.
Beech and European ash are reported readily available, but with still no signs of UK end users switching to the latter despite longterm decline in availability of US ash due to emerald ash borer.
African availability is generally reported to be good, although one agent said that it was “ever clearer that Europe is not the market shaper” it was.
“China is far less hassle as a buyer than we are, plus African domestic consumption is growing,” they said. “So suppliers are generally more bullish, adopting a more take it or leave it stance.”
In the US, continued bad weather has hit log supply, while at the same time Chinese tariffs on US hardwoods, resulting from the countries’ tit-for-tat trade dispute, have impacted output. “Because they’re not getting the lower grade demand from China, they’re not producing the upper grades Europeans want,” said an importer. “US mills are exploring other markets in response, witness the 40 to 50 American companies at Interzum, more than for years. But it’s going to be difficult to replace the kind of volume business China represented and some predict consolidation of the US industry as a result.”
US tulipwood and walnut availability is said to be stable, but one importer said that attrition of ash supply due to borer infestation is “becoming steadily more apparent”.
Supply of PEFC-certified wood products from Malaysia is reported to be constrained by the organisation’s crackdown on compliance.
Availability of FSC-certified timber from the US has also continued to tighten. The revision of the FSC Controlled Wood standard and its replacement of company risk assessments with national risk assessments are reported to have deepened US disillusion with the scheme.
And the trend away from certification, some feel, could accelerate with the emergence of alternative tools and risk assessment demonstrating US hardwood legality and sustainability. These include the American Hardwood Export Council’s interactive online forest map, showing forest growth and timber offtake, and its American Hardwood Environmental Profile (AHEP), documenting individual consignment’s sourcing and legality credentials, carbon and wider environmental impacts. Added assurance for the US sector comes in the justpublished, AHEC-commissioned new edition of the Seneca Creek risk assessment report, which finds “negligible risk” of illegal timber entering American hardwood supply chains, and details evidence of its sustainability.
With still only Indonesia issuing FLEGT licences, the EU FLEGT legality assurance initiative is still reported to be gaining little market traction, but more positive noises are coming from Ghana that it could complete implementation of its FLEGT Voluntary Partnership Agreement and start licensing soon. Some question the impact this will have given the decline in Ghana’s EU exports, against the backdrop of growing Chinese buying and domestic consumption. Others, however, feel it could lift sales of Ghanaian teak components and garden furniture in Europe and boost the profile of FLEGT generally.
The TTF is also undertaking a pan- European FLEGT communication project, funded by the Department for International Development under its Forest Governance, Markets and Climate programme.
Another communications boost for hardwood comes from AHEC, which is further stepping up promotion for America’s most abundant species, red oak. In its latest initiative, the Legacy project, designer makers are creating red oak furniture to the specification of 10 prominent UK cultural influencers. The results will be exhibited at the Victoria & Albert Museum throughout the London Design Festival in September.
It’s generally agreed the hardwood sector needs every marketing shot in the arm it can get.
“We’re not battening down the hatches, but are more focused than ever on running a tight ship,” said an importer. “Whatever the Brexit outcome, we’re anticipating a bumpy ride.”
