As the industry enters the fourth quarter Finnish sawmillers are looking back on nine months of trading with reasonable satisfaction, and looking forward to a similar picture in 2015.

That’s not to say there aren’t challenges but, generally, the mood in the industry is positive.

"Finnish production is up year-on-year and export markets have remained reasonably strong," one shipper told TTJ.

One of the strongest export markets is the UK, where the economy has stabilised and the revived housebuilding activity is providing steady demand. According to the Finnish Forest Industries Federation, in the first half exports to the UK rose 4% on the year – roughly in line with the increase in construction – boosted by a 12% increase in whitewood shipments. Redwood demand is expected to increase as houses reach the second fix stage.

Shippers contacted by TTJ confirmed that demand for redwood is steady and back in September customers were closing business for well into October and November.

Although exports to Europe in the first six months were 15% up on the year, this figure doesn’t give the true picture as strong demand from Germany and, to a lesser extent, France has a disproportionate effect. In Europe generally, demand remains flat and the outlook uncertain.

FRENCH PURCHASES

In the first six months France’s purchases of Finnish redwood and whitewood combined were up 12% but the market is now thought to have slowed.

"In Q1 French buyers were more optimistic and they bought quite heavily," said one sawmiller. "Over the last few months they’ve been buying more to demand, so it’s not as strong a picture.

"The hope is that because Germany is busy and because of its central location it will act as an engine for the rest of Europe," he added.

In contrast to the rising demand in the UK and Germany, sales to Japan have fallen sharply – down 22% in the period January to June. Redwood volumes fell 17% an whitewood by 25%. The dramatic drop-off is largely a response to artificially high demand last year as Japan anticipated housebuilding activity would continue to improve and they also stocked up in advance of the sales tax hike effective from April 1 this year.

"Japan had a huge surge in housing starts so they ordered a lot of material and then the timber piled up on the docks and they weren’t able to work through it quickly enough, and they also bought to avoid the tax hike," one shipper said. "What we’re seeing now are probably more normal levels of activity."

Sales of redwood to Israel have also tailed off but increased to North Africa.

Finland’s domestic market – the mills’ biggest market, with 35% of production – is also sluggish. Housing starts are falling and are not expected to improve until 2016. In terms of production, redwood is at the 10-year average mark, while whitewood is up slightly. During the holiday months of July and August a larger volume than normal stayed at the mills but deliveries are said to have picked up to normal levels for the autumn. However, there have been some provisional announcements of possible cutbacks in whitewood production.

Raw material supply and prices are stable but other factors are having an impact. Sawn timber prices have risen but any benefit to Finnish mills has largely been eroded by the pound strengthening against the euro – at the same time the Swedes are enjoying a more favourable exchange rate, although they are faced with a strengthening US dollar. However, the Finns do know that at some point exchange rates will swing back more in their favour.

"It’s an added complication but it’s a temporary situation; it fluctuates," said one shipper.

EU SULPHUR DIRECTIVE

But what is adding an irreversible cost is the EU Sulphur Directive, which comes into effect on January 1. Under the directive, the sulphur content of all maritime fuel used in the Baltic, North Sea and English Channel must be cut to 0.1%.

The full implication is not known but in the past the Finnish Forest Industries Federation has estimated the directive could add an extra €200m to the industry’s annual transport costs. One contact told TTJ it was expected to add "a few euros" to every cubic metre. In the meantime, the industry is incurring the costs of preparing for the change.

Slow economic recovery in many countries and political uncertainty in Ukraine and the Middle East may mean any increase in global consumption of softwood will remain modest, but Finnish mills are generally optimistic about the months ahead, and into 2015, especially in the UK.

"There may be disruptions like flooding but, overall, we feel the UK, with its increased timber consumption and positive housebuilding figures, is going to be a good and steady market," TTJ was told.