Most softwood traders were glad to see the end of 2000, especially as the last quarter turned out to be far worse than expected. But there is still a great deal of concern about demand in the year ahead.

Although January has seen an upturn, everything seems to be more weather sensitive than usual, with sales only spluttering into action during the dry periods.

In spite of the fact that logging in northern Europe and Scandinavia was severely hampered by the mild wet weather during the last quarter of 2000, there does not appear to be any particular shortage in the supply of whitewood. From an already weak level in December, offers from shippers have been circulating at further reduced prices, and good quality kiln-dried and strength graded softwood is being offered by a number of mills below £110/m³ fom.

The lack of sales in January has broken the nerve of a number of sawmills, particularly in Sweden, which have stocks to sell and now need to convert timber into cash.

One producer commented that the Swedish banks are taking a far more cautious approach to the sawmilling industry and are refusing to extend overdraft and borrowing facilities without good cause. This is putting pressure on the mills to generate sales as quickly as possible, with prices proving to be the first casualty. But for some mills the endless cycle of higher log prices and lower selling prices has called for some decisive action.

The Swedish Rövik group is closing the Söndra and Stockaryd mills which had a combined output of around 100,000m³ of sawn softwood. A third mill in the group, Jobo, is to cut back production by half to around 20,000m³ and will concentrate on converting smaller logs. The Källebäcken sawmill in southern Sweden, which produced 30,000m³, has also been closed by the owners.

The combined effect of these measures will trim only around 130,000m³ from Swedish production. As one agent said ‘since the demise of the Fagerlid mills which took away hundreds of thousands of cubic metres of sawn timber from the market place, the industry has not really missed any of that volume’.

UK agents and importers have been disappointed by the latest price reductions, as they have dented confidence in the forward market and are undermining the value of landed stocks.

Traders with low stocks see these new levels as an opportunity to re-build gross margins in what has been a suffocatingly competitive market, but if the situation persists, lower prices will work their way along the supply chain, and affect everybody’s turnover and margins.

Poor selling margins have become synonymous with the UK softwood industry, and the effects have been felt in areas such as recruitment, training and investment.

Some of the more forward thinking companies have tried to break this mould by entering new markets such as engineered wood products and prefabricated floors and frames. However, housebuilders are notoriously slow in changing their building methods, which can mean a significant time lapse between developing a new product or building method, and obtaining firm orders.

A case in point is Cox Long. In spite of investment and a sales strategy to satisfy the changing needs of the building industry, the importer and fabricator became a casualty when it appointed administrators. In a statement, the administrator BDO Stoy Hayward (TTJ January 27) highlighted the problems caused by low margins in the traditional products and slower-than-expected demand for engineered and prefabricated wood products.

Despite the fate of Cox Long, there is still a strong belief within the trade that timber frame construction and cassette floors will generate high demand in the future. A number of manufacturers are looking to expand their production, such as Century Homes from Ireland which believes that current UK fabricators will be able to meet only 50% of future demand.

The situation provides a timely entrance for Finnforest to announce its expansion plans for engineered wood products (TTJ January 20). The Finnish giant plans to commission an I-beam production line later this year capable of producing 5 million linear metres per year. With substantial funds to back up their sales and marketing, Finnforest aims to secure a larger share of the UK and central European markets for composite beams in the building and construction industry.

This will undoubtedly add to competition in the I-beam sector, where a handful of players have been enjoying a dominant market position, but it is likely that the national civil engineers and housebuilders will be approached directly.

It is interesting to note that Finnforest’s anticipated production equates to the replacement volume of 470,000m³ of 47×200 softwood material, another blow to solid joists.

&#8220Since the demise of the Fagerlid mills which took away hundreds of thousands of cubic metres of sawn timber from the market place, the industry has not really missed any of that volume”

Turning to the joinery grades of whitewood, there has been a general weakening of price although wide sections such as 25x275mm sawfalling have fallen by only a few pounds.

Resilient price structure

The most resilient whitewood price structure is unseasoned and ungraded, where levels have been in the high £90s for over a year. Largely produced in the Baltics, this product may have reached the bottom of the market, although competition is expected to increase from Russia this year.

In the last softwood report (TTJ November 25, 2000) attention was drawn to the new market for heat-treated pine, now Stora Enso plans to establish a plant at their Kotka sawmill which will use whitewood.

The company has been testing the concept for almost four years, with a view to marketing heat-treated spruce as a high performing joinery material with an inherent durability that will be suitable for external use without chemical preservative treatment. The sawn whitewood will be produced and sorted at the Kotka mill, where only sound knots and uniform characteristics will be permitted past the grading line. The new product is to be called Thermowood, and will be aimed at western European markets where there is growing demand for environmentally friendly products.

Redwood prices remain weak, particularly in the middle cut sizes which are in plentiful supply, and there is evidence of some dumping from Swedish sources of unsorted quality at base levels of £140/m³. Scandinavian and Finnish productions have come much closer to Russian levels, but not close enough to stop increasing market share being taken by Russian imports.

Last year’s figures indicate that Russian forestry enterprises increased their output in all sectors by just under 1.5% and, within that, wood products rose by 12% over 1999 levels.

Russian exporters have been trying to negotiate higher price levels for shipments in February and March based on growing demand from areas in central Europe such as Belgium where returns have shown signs of improvement. In spite of the worries that there are massive volumes of unsold redwood at the north-eastern ports, there are shortages in a number of the common sizes in fourth quality.

Predictions of a further downturn in the US economy have prompted suppliers such as Chilean planing mills to look at other markets. One agent reported that a Chilean producer found the UK market to be much cheaper than the US. The Chileans machine clear grades of softwood in either original or finger-jointed lengths, with a large proportion of their exports sent by container for use in the DIY market. The shipper found the UK buyers to be more tolerant of knot content in the larger sizes, but found common ground in beading and small mouldings where high quality redwood sideboards were used as the raw material. Some South American mills have been marketing redwood (radiata pine) as a sawn product graded as ‘knotless three sides’ and those importers who have taken trial parcels have reported favourably on the finish achieved through their planing mills.

As some of the productions are kilned to fairly low moisture contents of around 10% (depending on dimension) there has been some caution from buyers regarding the straightness of the pieces, but so far this has not been a problem.

The UK softwood market has been operating on a very short-term stock replacement basis for at least two years. Generally, importers have been declared as under-bought through most of this period and shippers have waited for the surge in demand as stocks have been replaced. However, there are reports from the agents that importers’ stocks are not as depleted as this time last year, and the volume of prompt business has not reached the levels that everyone expected. The DIY sheds still remain the strongest market with large joinery and furniture manufacturers placing forward commitments, all in contrast to the merchanting sector where business is ‘slack’.

The year has opened up with uncertainty in demand and price. Already mergers are taking place between some of the UK’s national housebuilders, which will reduce the customer base for timber.

Further rationalisation is expected in the sawmilling industry, particularly in Sweden and the Baltic states, and softwood is expected to come under additional pressure from substitute materials such as MDF and composite wood products.

The wet weather that has hampered activities in the timber industry all over northern Europe, has been blamed for the downturn in demand which is still affecting the UK trade. Everyone is expecting a sharp upturn in activity during the early spring as building projects try to catch up. The true level of demand will not be gauged until later in the year when the volume of new and ongoing business can be evaluated.

Timber decking is still a buzzword and there are many hopes pinned on a repeat performance of last year’s strong demand. If this doesn’t materialise, how-ever, then the current sense of panic in the Swedish camp will probably spread a little further abroad.