Brexit is a cloud on the business horizon and the indecisive UK election has compounded political and economic uncertainty. The resulting slide of the pound against dollar and euro has also added to the complexities of international trade. So far, however, the UK hardwood sector seems to have come through the turmoil relatively unscathed. Comments on the state of trade range from stable to strong – even exceptional.
To paraphrase the comments of a multi-site importer/distributor as “we’ve never had it so good” would be an exaggeration, but the business maintains that it hasn’t been this good for a while.
“After a solid 2016, we set demanding targets for 2017, and we’re exceeding them,” said a spokesperson for the company. “In some areas we haven’t seen such trading levels since 2006/7.”
A fellow importer/distributor was also upbeat. “Turnover has increased over and above currency-induced price rises, and volumes are up too,” he said. “And it’s nationwide. All sites are doing well.” An importer was not quite so bullish, but reported business as “uneventful”.
“Given external stresses, boring is reassuring,” he said. “Demand has been solid from last year to date and other than European oak and iroko, supply has been satisfactory. Everyone is reasonably content.” Another said the weakness of the pound had hit some margins.
“And despite inflationary currency pressures, you’ve still got silly prices on offer, notably on much undervalued sapele,” they said. “But, that said, we’re still on budget. We’re just working harder for it.”
The key hardwood demand driver is reported as continuing robust UK construction. The IHS Markit/CIPS Construction Purchasing Managers’ Index, slipped in June to 54.8, but that was from a 15-month high of 56 in May and still indicated growth with house building reported to be “increasing at one of the fastest rates since 2015”.
“Hardwood flooring isn’t as buoyant as it was, but that may be fashion as we’ve seen continuing strong demand from the wider interior joinery sector and for exterior construction-related products, notably yellow balau decking and western red cedar and larch cladding,” said an importer/distributor.
“And our strongest sales are to door makers who report healthy demand across new build and RMI sectors.”
The door industry is also anticipating further growth following the Grenfell Tower disaster. “Owners of large buildings, notably in the public sector, are urgently reviewing fire safety, especially fire doors and cladding,” said an importer/distributor. “You’re potentially talking big numbers. For instance, one hospital is reported to be replacing all fire-door frames after finding they were non-fire-rated MDF.”
Most businesses also say that passing on price rises has not been as difficult as envisaged. “Over the year, increases on the basket of hardwoods are probably up around 15-20%,” said an importer/distributor.
“That’s partly down to rising global demand, but mainly, of course, the weakness of sterling and customers are more likely to accept that as it’s reported constantly in the media. It’s more difficult to increase prices just 3-4% due to suppliers imposing a rise to cover inflation or improve margins.”
Another trader said the exchange rate rises had contributed to it having the “strongest year for lumber ever in value terms”.
An importer, however, said that while they’d managed to pass on most rises, customer acceptance varied. “It’s been easier with scarcer varieties, but in sapele particularly we’ve met resistance.”
In terms of species, the “hot potato”, as one importer described it, has been European oak. Besides the pound’s slide against the euro, global demand has pushed up prices and created supply pressure.
“Consumption is increasing due to a strengthening world economy,” said a distributor. “Other nationalities, notably China, are also switching to European oak from American white oak due to the dollar’s strength against the euro and other leading currencies.”
The result, they added, is an 8-10% rise in European oak prices over and above currency-related increases.
Exacerbating the issue is Croatia’s export ban on logs and timber over 20% moisturecontent. This is ostensibly to prevent spread of the oak lace beetle, but also, it is suspected, to support development of Croatian timber processing.
“This has particularly affected Italian mills and will increase their recent investment in Croatian processing facilities,” said an importer. “Exacerbating the situation is Croatian exporters’ insistence that you buy a range of lower grades to secure prime.” One importer said they were consequently turning more to French oak lumber. But another thought the focus of French mills on boule production and their QF grading system limited its appeal.
And there seems to be little relief in prospect in European oak, with one importer forecasting a further 10% price hike for the new cutting season. Among other European species, beech has seen UK demand fall, largely it is thought as TRADA no longer endorses it unequivocally for 60-minute fire doors. However, one importer/distributor still advised customers to assure supplies as popular dimensions are scarce thanks to wider European demand.
Supply of American white oak has been stable, despite growing US demand, notably for barrel staves, but also construction use, and prices are reported moderate to firm and, by some, as recently easing.
“Where white oak prices have risen is in FSC-certified,” said an importer. “Supply has tightened as some forest owners let certification lapse when they didn’t get the return. As a result the remainder is oversold.”
US maple is reported to be moving slowly, tulipwood demand stable to strong and cherry enjoying a modest pick up. Ash demand is also reported as good, with prices softening recently due, said an importer/ distributor, to forest-owners “maximising value of standing timber before the emerald ash borer beetle depletes it”.
Walnut was described as “still a hot item overall”, although an importer said it was difficult to pin down market price due to the range of grades.
“It’s a complex system, with some priced 20% above the general market,” he said. Tropical timber is described as having “fewer issues” in 2017 than temperate. “There have been shipment problems out of Douala, Cameroon, due to late rains and vessels not turning up, but nothing significant,” said an importer/distributor.
Meanwhile, sapele and sipo supply is stable and prices, extracting currency impacts, generally steady, although suppliers are said to be talking up sapele for the fourth quarter. “We’re also seeing a widening gap between KD and green sapele, so we’re importing more green to dry ourselves,” said an importer/distributor Better news is improved availability of FSC-certified sapele and a shrinking of price differential with non-certified.
Idigbo and utile, meanwhile, were described as “relatively uneventful” in terms of availability and cost.
Iroko is the African species where challenges are reported. One importer said supply was easing compared with 2016, but another described it as “still like hen’s teeth”. “It seems to be a cyclical harvesting problem, with forest areas being logged just not yielding much,” he said.
“The Democratic Republic of Congo produced a lot, but it’s really not on the agenda any more due to legality and sustainability concerns. FSC iroko is especially scarce and prices firm.”
He added that future budgeting for European oak and iroko would be based on “selling what we can buy, rather than buying what we can sell”.
Meranti is another species under supply pressure, partly due to demand elsewhere in Europe, partly to Malaysian regulations curbing log exports and a long rainy season. Traders report little progress in secondary species. Movingui, for instance, has been trialled by several, but customers remain reluctant to adapt to its machining properties. Headway is reported, however, for grandis varieties and modified timber, with both Accoya and Kebony highlighted by traders.
The UK also still lags behind Europe in terms of use of engineered hardwoods, but several importers say that’s changing. “It’s a slow burn, but sales of laminated sapele, grandis and oak are promising,” said one. Interestingly, while no discernible demand trends for sustainably certified timber are reported, one importer/distributor commented on the increased visibility of US hardwoods accompanied by new American Hardwood Environmental Profile (AHEP) documentation.
“This covers legality and sustainability data, even carbon footprint to point of delivery,” he said.
“It will be interesting to see how this impacts and develops in the market.” The effect of FLEGT licensing in the solid hardwood sector is reported as relatively small, given that imports from Indonesia, the first country to issue licences, are dominated by plywood and manufactured products. Moreover, the late and heavy rains have hampered supplies.
“But we are now buying a mix of SVLK-certified/FLEGT-licensed and FSC balau decking,” said an importer, “and we’ve heard that another importer, which had opted for FSC-only, is now doing the same.”
Another importer additionally commented that FLEGT-licensing did “plug holes” in legality assurance of FSC-certified wood from Indonesia. “So FSC-certified, FLEGT-licensed timber is job done,” he said.
Importers and distributors also commented that they wanted both the EU Timber Regulation (EUTR) and FLEGT licensed goods’ status as exempt from further EUTR due diligence assimilated into UK legislation post Brexit.
“EUTR compliance is embedded into company systems and abandoning or diluting it, or the FLEGT initiative, would send the wrong signal on our commitment to combatting the illegal timber trade,” said an importer. “It’s vital for our credibility.” Looking forward the hardwood trade expects further headwinds from currency fluctuation and Brexit uncertainty. But against that it sets continuing steady to buoyant demand.
“Lack of Brexit clarity is concerning and you have to hedge against it making trading conditions tougher,” said an importer. “But part of that is making the most of current market opportunities and there’s no sign of those diminishing for now.”
