Summary
• There is little forward purchasing for mainstream species.
• The stronger dollar means American suppliers are being hampered by exchange rates.
• Demand for iroko is steady but weaker for other African species.
• UK stocks of meranti are sufficient to meet demand.
• Demand for European oak is holding up reasonably well.

At a recent international conference unconnected with the timber industry, a commodity buyer/seller said of the current state of his trade: “The best thing is to sleep a little later in the morning and to go home earlier in the afternoon.” But few UK-based hardwood traders are affording themselves that luxury: in effect, they are having to be highly proactive to squeeze business out of the current market.

Forward purchasing is at a low level for most of the mainstream items whereas interest is somewhat keener in specifications which are more unusual or difficult to source. Many buyers are keeping their inventories as low as possible and, in general, can resort to purchasing landed stocks as and when the need arises. Sales prospects are being further undermined by the increasing scrutiny of credit limits and, worse, by retrenchment and receiverships among the traditional customer base.

Few UK-based sellers reported reasonable levels of enquiry and order intake, prompting one to comment: “I have seen many recessions but never anything like this. Material that would have been gold dust not so long ago now cannot find a buyer.” Even the few sources reporting decent order intakes were concerned about the low level of enquiries.

Temperate hardwood movement

Overall, movement of temperate hardwoods appears less sluggish than for many of the tropical species. North American white oak is continuing to find outlets in the UK although certain specifications – notably the thinner dimensions – have come under price pressure. It is understood that 4/4, for example, has lost at least 5% of its value in the space of a month as producers, stockists and distributors in the US look to get stock moving.

This year brought a UK resurgence for ash although the downturn has also adversely affected its fortunes. Similarly with black walnut, available quantities are moving with relative ease but US suppliers are understood to be more flexible on price as they push for much-needed orders. Meanwhile, tulipwood is widely regarded as a commodity item which will always be in demand, but here again there is evidence of weakness. “The name of the game now is how cheap is the price,” said a UK-based North American hardwoods specialist.

UK demand for cherry, hard maple and red oak has not been strong at any stage of 2008, and the credit crunch has heaped even more pressure on these already-struggling markets.

With “not a lot of green lumber coming forward” and US hardwood production dropping significantly as mills cut shifts or close completely, one contact said: “We are emptying the channels and, at some point, there are going to be shortages.”

Export opportunities for the remaining US operators are being severely hampered by the steepness of the recent economic decline in many of their traditional overseas markets and by the strength of the US dollar in relation to most other major currencies. The exchange rate is “making weak prices look expensive in the UK market”, said a leading importer.

Currency is a major issue for the hardwood trade as a whole. “Many people hold stocks in different currencies so there is a lot of confusion about prices and no stability – but in most cases now, it’s the cheapest offer that gets the deal,” said one leading trader. Another spoke of his unwillingness to invest in stock because “I don’t know what the real levels are”.

According to European oak specialists, the renewed strength of the euro against the pound did not unduly affect UK demand for the product in the first three quarters of this year. “It’s in fashion at the moment – the public love it,” said one source. “Kitchen cabinet manufacturers have been telling us that demand for it this year has been stronger.”

Green lumber prices have remained firm but views diverge on the direction of the market at the sales end. Some experts argue that European oak prices have shown signs of weakness whereas others believe the species is proving itself to be largely “immune” to the pressure afflicting other areas of the hardwood trade. One of the former said: “We are seeing a bit of a downturn in demand because it is so expensive. And customers are starting to get more picky on specifications.”

Mixed tropical fortunes

Starting the review of tropical hardwoods on a positive note, the iroko market is still relatively firm as material has continued to move. “It is hanging in there because there wasn’t a lot around; there’s still a bit of a margin on it,” said one expert. Another added: “There are some late-running contracts and no problem in selling what’s available.”

Among the other African species, however, the news is less encouraging. In particular, sapele has become “almost a rude word”, according to one UK trader, because “everybody’s got it and whoever’s is the cheapest is getting the order”. The consensus is that prices in the UK have tumbled around 20% since the start of the year. Availability is more than adequate to satisfy lacklustre demand, with a significant proportion of the volumes consumed in the UK sourced from kiln-dried stocks on the Continent. Sipo and framire prices have also suffered of late while sales of wawa into the UK have fallen dramatically. In general, the African mills are “hungry for orders and prices are negotiable”, TTJ was told this week.

Sapele is struggling despite the fact that, for most specifications, it is cheaper than dark red meranti out of the Far East. Some specialists are expecting prices of the latter to fall in the near future after having held up well in dollar terms over recent months, but others envisage only limited scope for further weakness. UK stocks of meranti are sufficient to cope with current levels of domestic demand.

There has been a steady trickle of enquiries for keruing “but it’s very difficult to turn these into orders because we can’t compete with landed stocks”, according to one seller. Over recent years, UK demand has shrunk in line with the contraction of the domestic truck-building business – but even these reduced volumes have suffered shrinkage in the last couple of months.

Shrinking Brazil/UK trade

The word “shrinkage” certainly applies to hardwood shipments from Brazil to the UK. Traditional species such as mahogany and cedar are no longer arriving on this side of the Atlantic in any volume owing to low availability and high prices. UK demand for some decking species has been patchy in the face of relatively stable prices. The season in Brazil has ended and supply of hardwoods is likely to become more sporadic, TTJ was told.

According to a specialist in the South American hardwood market, the mills in Brazil are looking for prices which are way above the levels that the UK market is willing to consider. “You can’t even talk prices with some customers,” he said. “If no sales are happening, how do you know what the price is?”

In effect, hardwood sellers in the UK are caught between protecting the interests of their suppliers and their customers. On the one hand, they need to exercise care to ensure that prices do not reach levels that help to put producers out of business and thereby limit the supply pool when the current crisis clears; on the other, any increase in prices will only exacerbate the cost pressures on end users who, in many cases, are struggling to survive.