Production at many softwood export mills is exceeding demand and the continuous supply of softwood arriving in the UK has ignited brutal competition among traders fighting to maintain market share. Not only are cheap deals hitting the ground, but an ever-growing volume of unsold consignment stock is spreading around the country from Scandinavian and Baltic producers, all vying for a place in the distribution chain. Although overall imports to the UK in January were down around 12% on the same month in 2014, they were still high. Last year’s import total was 30% ahead of 2013, with growth spread evenly through the 12 months, and momentum continuing into the last quarter.

With arrivals in January 2015 at a significantly high level, stock has continued to accumulate at the quayside, but more concerning is the fact that levels at Swedish mills are still excessive, with whitewood under most pressure. There is talk of a brake on carcassing production, but that has yet to materialise.

In addition to Britain’s stable economy being a draw to shippers, the sharp upturn in Sterling’s strength against the Swedish Kronor and the Euro has underpinned Nordic and European exporters’ competitiveness here. When strength-graded timber prices started falling in earnest, the new levels closed the gap against British homegrown, creating further opportunity for imported softwood to gain market share.

While UK merchants welcomed the plentiful supply and availability of full carcassing specifications, they also found contracts placed one week, devalued by lower prices in the next. Buyers also found that the downward price spiral undermined landed inventory values, and affected contracted goods which had not even been shipped. This story is not confined to Great Britain. Importers in Holland, Denmark and other importer countries have also seen markets weakened by the softwood surge.

Buyers hedge

The uncertainty created by falling prices forced a number of stockists to return to "just in time" buying, placing more regular but smaller contracts with mills to hedge on pricing. Other buyers just held back from making any commitments.

As the price differential between homegrown and imported softwood began to narrow, some merchants also reverted to imports, and the market for pure C24 took off as the preferred option, stimulating a rise in the market for higher-graded material. To regain sales momentum, some British mills reduced prices through February and March. Several are reported to have substantial stocks in planed and graded softwood and can offer quick deliveries. Volumes of homegrown fencing material are at higher levels than expected too due to a sluggish start in fencing and landscaping sectors. Interestingly, the price structure for sawn fencing timber is more robust than for kilned, grade-stamped, planed and plastic wrapped material – an unusual position for an industry where value-added material is worth less on a pro-rata basis than the basic commodity.

During the first quarter, new exporters of graded softwood emerged including French mills. The result is even more supply in an already over-filled market, and one now boasting strength-graded material from every source. Only in the last two weeks of March did a minor Sterling exchange rate slow the price nose-dive.

Robust pound Boosts supply

Over the last five years the value of Sterling has averged around SKr10.81/£1 and €1.20/£1, with a low against the Kronor in March 2013 of around SKr9.62/£1 and against the Euro in July 2011 of €1.11/£1 in July 2011. But the currency peaked this March at SKr12.98/£1 and at €1.41/£1, up 20% and 17.5% respectively over the fiveyear mean. The year-on-year difference is 18% and 13%.

During the years when Sterling was trailing other currencies, UK shippers focused on markets in Continental Europe, North Africa and the Middle East that were paying better prices and yielding better returns. UK buyers were mainly serviced by exporters committed to a market presence, but they were lucky if they broke even, let alone made any profit.

During this period, homegrown producers took an ever-growing share of the graded softwood market although chiefly limited to C16. As imported prices increased, they were able to follow the market upwards, leading to higher mill investment and growing volumes of well-presented kiln-dried and planed products.

Currency has also driven production in redwood prices, but that market has been under less pressure than carcassing as Nordic production levels remained more aligned to demand. Although recent domestic utilisation has not been strong in Sweden and Finland, some mills have relied on their existing customer base to consume a steady volume. In January, Finnish redwood exports to the UK grew by around 3% over the same time last year, making Britain the largest importer in Europe of Finnish joinery, although Egyptian imports of Finnish redwood were still 45% higher than the UK’s.

Swedish redwood exports to the UK in January were also up over 6% year on year, but fell by almost 60% to Egypt, at around 55,000m3. Swedish redwood exports overall were down 11% on 2014.

In spite of the fall in value of the rouble, supply difficulties have precluded any significant increased volumes being made available from Russian mills to UK importers.

This has left a more stable market for the Swedes and Finns to continue to trade into. Within the EU, demand from building and construction appears to have weakened in the first quarter of this year, but activity in the UK is still holding steady and its building sector ranked among the best performers. The German domestic market is relatively firm, but for the softwood exporters, log prices are too high for mills to compete in the main carcassing arena. Instead they prefer to offer the usual specialities of long lengths and special decking grades.

Most merchants in the UK have reported a strong start to the year but say trade quietened during February. As always, trading maintained regional variations, but overall levels of activity were reported satisfactory. Many building contractors and developers are, however, now said to be awaiting the election before starting projects, particularly in housing, where each of the major political parties have differing policies that will affect finance and funding. However, the industry consensus is activity will increase as the year progresses.