The log shortage in northern Europe is continuing to take its toll on the Baltic sawmilling industry and, as a result, the price of wood fibre within the countries remains out of reach for smaller producers.
The persistent wet weather has restricted logging activities and there is still no sign of the dry, cold season for which everyone is waiting.
Instead, the Baltic region was also hit by severe storms and gale force winds which caused disruption to coastal shipping and damage to forests. The Estonian national forest reserve recorded damage equivalent to £250,000 in broken trees, while in Lithuania the port of Klaipeda was all but closed. One agent speaking from Riga docks reported that while he was at the quayside some timber packs were blown into the water.
The storms eventually abated during the middle of November, and by the 17th things had begun to return to normal.
In Latvia, a substantial number of small carcassing mills have closed down, many of which were feeder mills to the larger producers and exporters. But the situation at the bigger mills has also been difficult because the availability of whitewood sawlogs has been tight and many have been operating on a hand to mouth basis. This has caused production problems and led to late and incomplete shipments.
Although the general economic situation in Latvia is gaining in strength, the position of many in the sawmilling industry remains perilous. A climate has been created which favours expansion of the larger groups, while the smaller enterprises will either be bought out or they could close permanently.
Export value rises
It has been estimated that the volume of timber exported from Latvia to the UK will be close to 10% down on last year, but the value of exports is said to be riding 10% higher. The reason for this anomaly is attributable to the higher levels of value-added goods that are coming through, particularly in planed and treated products for use in the home and garden.
This is borne out by comments made from several shippers who are investing in planing mills, and have started to reduce the volume of basic unseasoned sawn softwood that they normally produce.
Producers in all three Baltic states are pursuing other markets such as the US where prices for the DIY type specifications are much higher than in Europe. Some mills have been successfully exporting CLS for the past two or three years under ALGA licences.
Investment in the Baltics continues to grow, and in Latvia this has increased activity at the ports of Riga and Ventspils. Riga handled a total of around 12.5 million tons of cargo during the 10-month period of January-November this year, which saw an increase of just below 14% on last year. Within the figures, timber related products accounted for just over 3.5 million tons.
Investment news
At Ventspils an increase of 11% was recorded up to the end of November, which took figures beyond 35 million tons. Unfortunately no separate figure for timber cargoes was available at the time of writing this report.
The wave of investment in the Latvian sawmilling industry was highlighted during November by the official opening of the BSW mill in Stopini, Riga. The Prince of Wales presided over the event on November 8 while on a tour of the Baltic region, and in remarks made during his speeches, he referred to the co-operation between Great Britain and Latvia.
Construction of the BSW sawmill was completed last year after an investment of £12m, and is reported to be employing 160 personnel.
Further news of investment concerns the Estonian forestry company Sylvester which plans to establish a new sawmill in Launkalne near Smiltene in Latvia. The first equipment is due to be installed during December, and it is planned to produce 180,000m3 a year.
The mill is expecting to source logs from Latvia and other Baltic regions but, in common with other sawmillers, talks are expected to extend to Russian log producers in order to procure high quality wood fibre at economic levels.
The ties and trading relationships between the UK and the Baltic states go back over a number of centuries, and since independence their economies have continued to expand.
A further sign that Latvia may come even closer to the EU follows a suggestion made by the Latvian prime minister Andris Berzins that a vote might be cast in 2003 in order to decide whether Latvia should apply to join the EU in 2004.
Recent progress has been made recently in Lithuania where two forest areas have achieved FSC certification, namely Panevezys and Northern Birzai. The total area assessed by SGS UK covers just over 66,000ha, and the period of accreditation will last for the next five years.
Export opportunities
FSC certification will enhance Lithuania’s position in the export market where value-added goods such as furniture are under pressure from western buyers, particularly those of Holland and the UK, to comply with a suitable scheme.
The Birzai and Panevezys forestry areas will be the first in Lithuania to sell home-grown timber with the FSC logo.
For the nine-month period from January to the end of September, the combined felling operations across Lithuania produced almost 4 million m3 of timber, of which the largest volumes were softwood. Only around 350,000m3 were processed through Lithuanian sawmills, with a high proportion of logs sold to Poland and some of the Nordic countries.
The trading situation between the Baltic states and the UK is still influenced by the effects of the exchange rate between sterling and the US dollar. At the conversion levels of around US$1.42/£1, the UK market price is too low to sustain the exporting mills’ operating costs. As a result many contracts are still running late and the volumes on offer have decreased for short-term shipment. Among the larger producers, there is a tendency to move away from the most basic unseasoned ungraded market, and a preference has developed to supply more kiln-dried products, with a growing accent on planed and profiled items.
With log supplies in Latvia being such a big issue at present, delegations of buyers have been exploring parts of Russia in order to increase supplies. Some have been successful and have gained experience, but others remain cautious, particularly where Russian forestry companies have demanded cash up front.
One problem facing those who wish to expand their machined goods is the nature of Baltic redwood logs where the knots are large and, with a few notable exceptions, no-one is in a position to produce volumes of suitably graded pine that the export markets will accept.
So, everyone has had to take a second look at Russian logs, as these will yield the necessary joinery grades required for items such as window frames and decking.
But apart from the financial considerations of dealing with Russia, there are also political and logistical problems which affect the passage of goods across the border, in the form of authorisations, taxes and rail tariffs.
Turning to the softwood market, the price of Baltic softwood to the UK has been increasing steadily, albeit by small amounts, but there seems to be a common resistance by nearly all producers to accept cheap offers. The UK is still the closest and strongest market for Latvia, but export figures for 2001 are predicted to be lower than last year, and 2002 is expected to remain at this year’s level. However, competition from Scandinavia should not get any harder next year because countries like Sweden are focusing on markets outside Europe such as the US, Japan and lately, China, which is of growing importance.
Prices firming
Therefore it is likely that prices will continue to firm but there could be a counter effect from German whitewood producers, particularly in the carcassing market, as internal consumption has been falling because of lower construction activity.
The two key factors that will influence the market for Baltic timber shippers will be demand and log extraction.
Each of these factors is proving to be as unpredictable as the other. World demand is regarded to be uncertain, although there is a fair degree of optimism in the UK that the econ-omy will keep going next year. The Baltic weather is undergoing an unusually mild spell at present; although the temperature has dropped below freezing on several occasions, it has recovered just as quickly.
Logging will remain restricted until it gets much colder and the mills are in need of increased supplies. What the Baltic producers are waiting for to get things going again is a permanent ‘touch of frost’.
