Summary
• UK hardwood imports fell 12.2% from January to October.
• Traders report lower margins.
• White oak from different parts of the US is varying more widely in price.
• Some US mills are selling more green to speed up cash flow.
• More grades of European oak are coming to market.
• The EUTR may block some imports of African timber from Europe.
• Modified timber producers are positive about prospects.
UK hardwood traders may toast the festive season, but the tipple of choice this year will probably be cava rather than champagne.
That’s how one importer summed up the hardwood sector mood after what he and others agreed had been a “tough, but not a terrible” 12 months’ trading.
Latest Timber Trade Federation statistics show UK hardwood imports to October falling 12.2% on the same period the year before to a total of 320,000m³. However, traders point out that this followed a 32% increase in 2010, so business was “down but not downhearted” as one agent put it.
“We’re supposed to be heading back into recession in the first quarter of 2012, but sometimes it feels we’ve been back there a while,” said another agent/ importer. “Having said that, when we’ve come to add up sales figures, it’s not been so bad. We may have drifted back toward late 2009 trading levels, but we haven’t dropped off a cliff.”
Another importer said profitability had remained tight through the year.
“We’ve been able to pass on some price increases, but there are competitors out there desperate for sales making silly offers, so margins have deteriorated,” he said.
At the same time, he added, it wasn’t all gloom and doom. “It’s been difficult, but not as difficult as we expected. New build construction is a different story, but there’s still hardwood being used in joinery, shopfitting, hospitality and, from what we’re hearing, the conservatory business. There are sales to be made if you put in the hours and know where you’re looking. ”
Just in time norm
Besides working “harder and smarter”, hardwood traders have also had to get even more used to a greater frequency of smaller orders. “Customers are more reluctant than ever to commit ahead and just-in-time trading really has become the new norm,” said one trader.
Another said selling primarily to importers and larger merchants had helped them keep “on budget”, but so had their stock holding. “Business is more hand to mouth, but we’ve got regular stocks coming in, so we can cater to that,” they said. “And when we tell customers they can pick up the wood in a few days, they don’t barter, so it also helps margins.”
The trend was borne out by an importer focused on forward ordering, which he described as a “vulnerable place to be”. “We’re OK thanks to sales elsewhere, such as the Middle East and North Africa, but in the UK business is being picked up by stockists who can respond to instant demand.”
Another coping mechanism for the tough trading environment is a broader product range.
“We’ve been diversifying beyond standard sawn lumber into more processed and niche products for a while, and it’s really stood us in good stead,” said an importer. “For example, US ash, poplar and white oak strips, which help minimise waste, have done well recently.”
Another trader said they were getting “encouraging demand” for laminated oak components and modified timber.
In terms of individual species, demand for US white oak was reported as “sustained” and prices firm after a weak patch. But one company forecast renewed weakening as “shippers attempt to shift inventory after the holiday”.
White oak price variation
An added complication cited in white oak was increased competition between mills in different parts of the US.
“Customers increasingly view white oak as a homogenous commodity and don’t differentiate between sources. But it’s hard to pin down a market price due to the variation in what we’re being quoted between north, south and mid-US,” said an importer.
Some US suppliers were also reported to be selling as much green as possible “to generate quick cash”. That meant it had to be kilned elsewhere, “adding a kink in the supply chain”.
Several traders said 2011 had seen a further increase in the popularity of US tulipwood as a “roughly half-price” sapele alternative. And supplies of US ash were reported to be stable or even improving, despite the continuing spread of emerald ash borer infestation. “Perhaps this is because plant health controls to prevent infected exports are now bedded in,” said an importer. But the fact that ash prices had increased just 2% was attributed mainly to weak demand rather than better supply.
One trader thought that the “UK’s American walnut phase” had finally peaked and said he’d also seen a “long awaited” upturn in cherry.?However, others reported the species performing the other way around. The consensus was that the UK also continued to show little appetite for red oak or maple.
While oak easily remained the biggest European seller, some traders say they hadn’t done as much as forecast because of sterling’s continued weakness against the euro.
One also reported the market becoming more diverse, with more grades on offer. “We’re seeing more Hungarian and Ukrainian material coming through, which is darker and less tight grained than Croatian. Whether this will strengthen or weaken the market is unclear.”
Meanwhile a European hardwood which has seen a continuing pick up in demand has been colour-no-defect beech, described as “the current paint grade of choice,” by one importer.
Sapele price trends
Among the African species, there were differing views on sapele price trends. One importer said the species was a ‘disaster zone’, as it was treated by some “as a stack it high commodity”. But another said they’d “worked hard to maintain prices, selling only third party-verified legal timber”, while a third, which had its own mills, had managed a 10% rise, “probably due to our defined place in the supply chain”.
Sipo, utile and movinge are all reported to have held up in price, but iroko was said to have been hit by falling demand in Ireland, and framire has problems all its own, due to the lack of certification and Ivory Coast’s political turmoil. One trader said at times it had been virtually unobtainable.
Freight rates from Asia were reported down, with shippers unable to fill vessels due to the economic downturn, but meranti demand was still described as “unexceptional”.
“We’ve done a few boxes from Malaysia,” said an agent. “But it still isn’t sufficiently cheaper than sapele to win over customers.”
Little discernible movement was reported either in specification of legally or environmentally certified hardwood this year.
“The percentage of customers specifying FSC or other certification schemes has been static, and verified legal is so much the market norm that it’s not an issue,” said an importer. “And certified is not providing much, if any, premium.”
An environmental issue that is increasingly preoccupying traders, however, is the upcoming EU Timber Regulation (EUTR), which from March 2013 makes it obligatory for importers which “first place” material in the EU to risk assess suppliers for legality.
The concern is that much about the implementation and policing of the new rules is yet to be decided.
“And as a company we have the added issue of also buying from other EU importers who may face different enforcement regimes,” said an importer. “We order up to nine months in advance, so if things aren’t clarified by the summer, we’ll have to take gambles on compliance. We need to know the detail soon. ”
The consensus is now that the EUTR will lead to some sources of supply, even entire species being dropped because their legality verification won’t satisfy the rules. Ivory Coast framire is mentioned most, but question marks also hang over some sapele sources. And one agent thought the regulation might “open the door for more hardwood substitution by modified timber”.
As for hardwood prospects for 2012, the consensus is more of the same. Several traders predict the top end of the market will hold up, and a possible kick in demand from hospitality and retail refurbishment for the London Olympics. But, overall, business is expected to remain short-term and unpredictable.
“Economic uncertainty is now even greater,” said one importer, “so, while we’re not pessimistic, we’re not expecting improvement either. We’ll have to stay fast on our feet and probably won’t know what the future will hold more than six weeks ahead.”
