The softwood industry is facing perhaps one of the toughest periods it has ever been through. ‘We seem to be facing a unique set of circumstances which has affected all markets at the same time,’ said an agent. ‘Now we are faced with oversupply which will force prices to remain low for some considerable time to come’. A weak market continues to dog the softwood industry, much to the frustration of the shippers, agents and importers who are waiting with growing concern for an upturn in demand.
Expectations that end users have a great deal of catching up to do are beginning to fade, as all eyes are focused on the weather and its continuing effect on the construction, housebuilding, fencing and decking markets.
In those areas where trade has improved, sales are reported to be ‘patchy’ and without the consistency expected for this time of the year. Although there is an increase in activity over previous months, sales are still erratic and linked to rises and falls on a day-by-day basis.
The situation appears to be mirrored across mainland Europe, with a notable weakening of the German market where expenditure within the construction sector has been falling dramatically. This is said to be linked to a number of economic factors, but mainly increased taxation.
The collapse of the softwood lumber agreement between the US government and Canada has been criticised by some sectors within US industry, and the whole issue of fees and tariffs is seen by the Canadian lumber industry as nothing more than a trade barrier.
In order to provide protection for the American home-grown timber producers by imposing a levy on imports, the US government’s strategy appears to be backfiring, and it has been accused of being instrumental in inflating housing costs by an equivalent of £750 per unit. The major users of softwood outnumber the employees in the sawmilling and logging sector by a figure of 25:1, and there is a view that, if Canadian imports are restricted, then the shortage in supply will be sourced from other areas and not from the home-grown producers.
Although the US is reported to be suffering from the effects of a ‘mild’ recession, the demand for lumber has been strengthening through April and May, with prices for softwood rising sharply.
This strengthened demand in the US, however, has given the hope of a sales opportunity to European and Scandinavian whitewood shippers who are licensed to grade CLS for export to North America.
Upward trend
Since the publication of the Baltics market report (TTJ May 12), the price of CLS in the US has risen by a further 10% and, if this upward trend continues, a substantial volume of production could be siphoned away from the European market. One agent said that although most of this volume would be sourced from the big Austrian and German producers, it would improve the situation for those Scandinavian and Baltic mills that have invested in acquiring the necessary grade stamps.
With the improved demand and rising prices for CLS in the US, Canadian producers have been reluctant to supply the UK the same product at lesser price levels, so British buyers have been turning to European and Scandinavian producers, and this has firmed CLS price levels globally.
However, while CLS prices have been rising, prices for standard sawn production have remained at rock bottom levels without any immediate sign of an improvement.
In the carcassing market, Baltic shippers are still facing difficulties in the form of poor returns made worse by unfavourable exchange rates, while the Swedes are continuing to churn out production at loss-making levels.
A Latvian agent noted that although the quality of much Baltic production has improved as a result of investment over the past decade, prices have continued to fall, reaching the levels of 10 years ago. This has left many in the industry disillusioned and there are fears of mill closures throughout the country.
Questionable mathematics
The mathematics of sawmilling in Latvia are now so questionable that one agent said it was hard to understand how the mills were still running. With log costs starting at around US$45/m³, the break-even selling price for unseasoned sawn timber technically equates to £103/m³ fom. Yet there are several exporters in the market selling at prices considerably below this threshold, indicating either they are able to source cheaper logs, or they are not long for this industry.
Many shipments from Latvia are running late and the smaller mills are still short of logs to fulfil existing agreements. Some mills have been forced to renege on contracts and their financial positions are so precarious that there is absolutely no chance of any recourse for buyers wishing to take action for losses caused through non-performance.
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“We are fighting like dogs for business at the moment, this is a serious market and there is not one vestige of fun left in it” |
The worst hit product has been dry-graded carcassing, which has been subjected to the most intense pressure from Swedish shippers whose mills have continuously reduced selling levels to improve sales and cash flow.
One shipper commented that Swedish whitewood production had fallen during the first quarter by 9%, and he believed that whitewood stocks were coming under control. He added that, although stock volumes appeared to be high, there were gaps appearing in specifications which might signal that prices will increase.
Summer holiday
Nobody really expects a rise to take place this side of the Scandinavians’ summer holiday, especially as there are offers circulating at very cheap levels.
If buyers are prepared to accept a percentage of redwood, then further price reductions are more or less guaranteed. Some kiln-dried stocks are being offered at the same levels that unseasoned was this time last year. This represents a reduction of between 6-7% over the year.
There is still a lack of confidence in the market and buyers are taking a short-term view of their requirements. Stocks in the UK are on the low side and most traders are working on a hand to mouth basis.
Even the much publicised buoyant Irish market has started sinking; contract volumes have dropped in some cases by 50%, creating a very competitive climate between agents. ‘We are fighting like dogs for business at the moment,’ said one, ‘this is a serious market and there is not one vestige of fun left in it.’
There is a consensus between agents and importers that redwood prices have held their ground more successfully than whitewood and carcassing. Prices for landed Russian stocks have actually increased over the past two months by around £3/m³ ex-quay as specifications have become difficult, leaving gaps in many of the popular sizes. Demand for Russian stocks is increasing in France and Belgium where selling prices have firmed by an equivalent amount, indicating a similar case of improved activity.
Most operators involved with consignment stocks report a good turnaround in all grades, but forward sales of Russian are reported to be on the slow side. Conversely, a Swedish shipper commented that the market for prompt shipment was sluggish, but forward contracts had kept volumes in line with budgets.
The picture appears mixed but, apart from a continuing weakness in centre cut sizes, the redwood market seems to be improving.
The news of Finnforest‘s bid for a controlling share of Moelven (TTJ May 19) has prompted a mixed reaction from ‘the creation of a monopoly’ to ‘an expected move by another giant producer’. If the proposed merger goes ahead the new enterprise will have a dramatic long-term influence not only on the timber market, but more importantly on the supply and manufacture of prefabricated building in central Europe and the UK. Both companies are producing engineered wood products and each is involved with building systems.
Timber frame
The conversion rate from traditional timber and brick construction to timber frame housing is still increasing. In the UK, most of the national developers are building the first 25% of their sites in timber frame. Although timber frame construction has its own merits, this practice has been adopted to get the show homes constructed quickly and provide a proportion of plots ready for early release. There has been a growing trend for building companies to invest in their own manufacturing facilities but, in future, frame units could be sourced from a larger system building supplier such as Finnforest, particularly because of its control over the supply chain.
The common industry view is that the big will get bigger and the small will disappear.
At the National Merchant Buying Society conference (TTJ April 21), there was a rallying cry for the independents to take their fight to the nationals who are threatening to dominate the market. The irony was not lost on one importer who commented that many of the independent timber and builders merchants had historically supported the very companies that were trying to either acquire them or put them out of business.
By purchasing timber from the wholesale divisions of these companies rather than from independent importers, merchants have been funding their own demise.
