Summary
• Imported timber is now around £25/m³ more expensive than British-grown material.
• Import substitution is starting to be experienced in the carcassing sector.
• There has been a pick-up in housebuilding activity.
• UK sawmills have strong order books for pallet material.
• The agricultural sector has been very buoyant.
• UK panel manufacturers had a better summer than expected.

Following improvement at the beginning of the year, demand for British-grown wood fibre remained healthy through the summer, thanks, in large part, to sterling’s continued weakness and resulting import substitution.

According to statistics from the recent European Organisation of the Sawmilling Industry event, UK softwood imports have fallen further than any other European country’s and it has lost its status as Europe’s top importer to Italy. And The Timber Trade Federation’s National Softwood Division forecasts that 2009 volumes will fall by 14% – an improvement on the 31% drop in 2008, but still a grim figure for importers.

This is literally grist to the mill for British timber growers and primary processors, with sawmillers reporting that production volumes are ahead of last year and, in some cases, “up towards capacity”.

“We’re not working double shifts, but we are working full and in some cases extra hours – and that’s quite unusual for November,” said one producer. “Historically we’d be planning for a tough Christmas, but things are going well and we’re about 9% ahead of last year.”

Exchanges rates

At the same time, mills acknowledge that their present buoyancy is based more on currency fluctuation than the strength of the domestic market, and prices and profits remain low.

“UK mills have battened down the hatches, negotiated with their suppliers to get the best possible rate and taken costs out where possible to get efficiencies through the business,” said one producer. “We’re making money, but not a lot because we don’t want to damage the fabric of the market, which is very frail.”

The consequence of this – and the weak pound – is that imported timber is now around £25/m³ more expensive than UK wood fibre, a situation that is causing some importers to vent their frustration. “They think we’re all absolutely oversold to January and it isn’t like that,” said a UK sawmiller. “It’s very difficult out there.”

Import substitution is even starting to be experienced for carcassing: “If you take out TR26, CLS and joinery products and just look at straightforward construction timber, UK suppliers are getting a much bigger market share,” said one contact.

British fibre adds balance

“Dyed in the wool Swedish buyers are now saying ‘I have to have all, or a proportion of British’,” agreed another. “They’re quite happy to have some British timber to balance imported and remain competitive.”

British mills’ share of the carcassing market is currently still seen as “a larger slice of a much smaller cake” and the fact that their improved fortunes are at the expense of imports rather than due to more “front line” activity isn’t producing unbridled optimism.

“As import substitution is driven by exchange rates it’s not something people have a great deal of confidence in,” said a ConFor spokesperson. That said, he added, the weakness of the UK’s recovery indicates that exchange rates will stay favourable, at least into next year.

British mills, however, would clearly much rather rely on an overall improvement in demand than a weak pound and the good news here, they report, is that there are some signs of construction pulling itself out of the doldrums, with last week’s upbeat forecasts from Taylor Wimpey and Redrow providing further evidence of an upturn.

Construction market

Indeed, “a steady improvement in UK construction market conditions and increased sales over the past few months” have led James Jones & Sons to reinstate night shift working at its JJI-joist-producing Forres factory.

“Some construction sites are starting up again,” said a spokesperson from the UK Forest Products Association (UKFPA). “Builders have worked through unsold stock and are now selling new houses rather than ones that were half-built last year.”

Pallets, packaging and fencing have clearly not been unaffected by recession, but continued to provide British mills with bread and butter work over the summer. “It appears the UK wood pallet sector is better at defending its market share than those in other countries and that’s been good for domestic [timber] producers,” said ConFor’s spokesperson.

“We’ve got the [pallet] market in a very nice balance,” said one mill, while another said they weren’t as busy as two months ago, but were still “sold out to Christmas”.

Fencing has been more of a mixed bag. It has been helping mills offset poor carcassing demand, but has now come off its peak.

“It died in August and hasn’t really recovered,” said one sawmiller, while another commented that after a surge around Easter, the year had been “steady, but not spectacular”.

Agricultural fencing

However, one standout success for sawmillers has been the agricultural fencing market, with ConFor describing the overall farming sector as being “in rude health and investing”.

One contact said he was looking at a “brilliant November” in farm fencing and that he had been “massively oversubscribed” on agricultural purlins too.

“Demand from agriculture has held up remarkably well and has been a saviour for quite a few people, especially those sawmills in rural areas,” agreed the UKFPA, although it cautioned that the sector is “seasonal and weather dependent.”

Stock levels at mills are still being kept low as part of the efficiency drive: “We started the year with far too much stock, but we’re now managing it better,” said a contact. “We not only reduced it, we’ve got a better balance.”

The UKFPA agreed that stock management is key, given that UK mills still benefited from being able to supply on short lead times, so can’t cut stocks below a certain level. “Generally speaking, if you’ve got the stock and can deliver it very quickly you’ll probably get the order,” said the UKFPA. “If you can’t, then it’ll go to someone else who can.”

Log prices are “starting to creep up”, with pine logs in particular on the rise, and some buyers have been forewarned of another “probable hike on everything” in January of about £5/m³. However, sawmills are trying to keep a lid on this. “We’re all very focused on not blowing it on log prices,” said one. “That’s what happened in 2007 when selling prices shot through the roof. We immediately threw it all away on logs and it took two years to get it back down. That’s definitely a factor in our thinking about giving our customers a sustainable price for carcassing.”

Log supply is the vital factor here, of course, and while the Forestry Commission is still providing “the underpinning volume”, some private growers continue to hold back until prices improve. The onset of the shooting season and wet winter weather were both expected by some contacts to put more of a squeeze on private supply, but currently there are no reports of shortages.

New competition

In addition to the economy, currency position and raw material supply, other market factors are also now coming into play for UK mills. Despite the strength of the euro, one is resurgent competition from Irish mills. “There’s a concerted effort from Ireland to move ongoing volume into the UK market,” said a sawmiller. “Many mills are back to full production and the only place to go is the UK. Buyers are making a lot of noise about it and trying to use it as a stick. It’s certainly going to be a factor.”

Looking forward, there is also continuing unease surrounding the impact of the wood energy market on log supply.

“The supply and demand balance seems to be just about right but at times it’s a close run thing,” said the UKFPA. “There have never been mountains of wood chips or sawdust waiting for a home, contrary to what energy suppliers may think and there are serious concerns about displacement of fibre away from the panel mills and some sawmills. The potential demand from planned energy plants is 40 million m3 per year – nearly four times the UK’s annual wood production. Where’s all this fuel going to come from?”