This year has proved to be exceptional for softwood shippers as it has been the first period for many years when prices moved upwards and stayed there, as opposed to sliding back to base levels like a game of snakes and ladders.
The year began with frozen waters around the Gulf of Bothnia, the Baltics and Russia, stranding cargoes at the ports. This caused shipments to run late at a time when UK stocks were low, and both importers and shippers, desperate to get something moving, were forced to pay the higher costs of chartering ice-class vessels. Whitewood log prices hit the roof, and the sawmills were forced to push up their selling prices, or go out of business.
The shippers’ plight was not helped by sterling’s weakness against the major export currencies, which made it difficult to honour contracts already agreed in pounds. Subsequently the costs of unseasoned and dry-graded carcassing increased dramati-cally, and Scandinavian and Russian redwood joinery and planing grades edged steadily upwards through the second and third quarters. An increased number of UK buyers made commitments on the forward market, rather than just sticking to the short term replacement cycle. As new contracts were being placed, shippers managed to achieve regular price increases virtually on a month-by-month basis.
Merchants’ prices
UK demand remained strong, right through to the end of October, and some of the terminal operators reported increased levels of activity well into November. In spite of this background of a steadily rising market, merchants’ selling levels to the construction industry did not increase in line with the replacement cost prices. It was only during November that the major building com-panies received notification of higher prices from the timber trade and, even so, these will not to be implemented until January 2004, mainly due to merchants quoting fixed prices until the year end. Furthermore, the new price levels are not reflecting the full increases obtained by shippers during the year.
Turning to the current market conditions, a mixed picture emerges. There are still wide-ranging shortages of whitewood sawlogs which are affecting both Swedish and Latvian producers. The larger forest product groups are in a stronger position for log supplies than the independent mills, a factor particularly prevalent in Latvia where there is still not enough fibre for sale at the auctions to satisfy demand. For those Baltic producers reliant on Russian logs, supplies are coming through too slowly. This is leaving the mills in a difficult position to plan their cutting schedules, and rising costs are forcing them to strive for higher prices. At the Russian mills, logs have been slow to arrive also, and sawn whitewood specifications from Archangel have become restricted. Lengths are now tending to polarise around 5.1m and longer, which is causing problems for those buyers in need of high levels of 4.8m, such as in the Scottish market.
Although the mills in the south of Sweden have been struggling to obtain sufficient whitewood log supplies, the position has been balanced by a relatively weaker demand from the other European markets, such as Germany and Belgium. However, most mills are still asking UK buyers to take some volume of pine in carcassing specifications in order to fulfil contracts.
Carcassing prices
Predictions that carcassing price levels are unlikely to rise during the first quarter of 2004 now appear to be correct. A number of offers have been circulating from Swedish mills for dry-graded specifications up to and including March 2004. The prices shown reflect current selling levels, and they are quoted in firm sterling. This would indicate that the mills are forecasting that the forward market is likely to remain stable during the first quarter and they want to get some orders for the new year safely tucked under their belts. Although the whitewood shortages have created difficulties for the mills in the south, some of the northern producers have substantial stocks of whitewood logs which are normally destined for the quality grades. As the whitewood joinery market has slackened, some of the volume might be converted to dry-graded carcassing instead and will increase supplies, thereby putting pressure on prices.
Turning to the redwood market, prices are looking a little less certain at present due to the effects being felt from the large Russian volumes landed at UK ports. Arriving late and in large volumes, they are inducing some of the large importers to reduce prices in order to convert their stocks into cash before the year end. These cheaper Russian prices have rubbed off on Scandinavian stocks, and there are some offers for prompt and landed stocks circulating at £8-10/m3 below the recent market level for middle-cut sizes.
Examining the background of supply from the Nordic region, it is revealed that during the first nine months of the year, the overall production of both redwood and whitewood was higher than during the same period last year. The highest rise took place in September, when Swedish supply exceeded demand creating an annual rise of 3% for whitewood, and just over 5% for pine. Conversely, the Finns showed higher increases in spruce production over pine, and are now reported to be sitting on higher inventory levels of whitewood.
Finnish whitewood is unlikely to translate into any significant supply of structural carcassing, as the specifications are more suited to other markets, but the volumes might have some effect on the general price.
Caution returns
Although many buyers booked further ahead during the beginning of the last quarter, there are now signs that the market is returning to shorter lead-in times as confidence is beginning to be replaced by caution. With growing pressure on interest rates, and talk about the weakening of house prices, many traders are adopting a ‘wait and see’ policy. When considering the strength of demand for next year in what is accepted to be a housing-driven market, these factors are bound to have a major impact on the economy.
In the US, a similar position exists in terms of consumer borrowing and interest rates. There are predictions that the mortgage rate will rise in 2004, and while many homeowners have increased their equity levels, new entrants to the property market are finding it difficult to afford the finance to get on the ladder. If the first-time buyers begin to fall away, this is bound to have some effect on housebuilding schedules and subsequently the demand for wood.
Looking forward to the new year, it seems likely that the UK will emerge as under-bought, but supply should remain adequate depending on the continuing production from Sweden and Finland. Latvian shippers and the other Baltic producers will remain under pressure from both the shortage and high price of sawlogs, and this problem could force a number of mills out of the UK market.
In spite of the growing level of caution amongst importers, many traders remain optimistic that 2004 will be another good year for softwood, and they expect the market for decking and garden products to prove strong once again, or even increase.
