Softwood trading in the first half of the year has been buoyant, with merchants across most areas of the country reporting strong demand and in some cases growth and record sales. Further up the supply chain, importers and agents seem unified in their view that during the second half of the year the market will be supply-driven. More volume from northern Europe will be targeted into a wider global market, notably in the US where prices are rising significantly, partly as a result of fears about supply shortages.
As trading moved into July there was a lull in UK demand, which appeared to follow the fall out from the General Election and the hung parliament that resulted. This put mounting pressure on the re-elected government to manage the first stages of the Brexit talks without an overall majority. The early signs from the initial discussions created uncertainty and markets reacted against sterling, which came under pressure by falling against the euro and Swedish krona. With UK interest rates still on hold at 0.25% and a positive projection that European economic growth will exceed that of Britain, there is only the slimmest of prospects that sterling will beef up in the foreseeable future.
It has been commonly reported that July heralded the first gaps in carcassing specifications and this has forced buyers who normally insist on spruce for their untreated items to accept pine instead. While there is a large variation in the quality of different strength graded redwood products, technically they may all be compliant with C16 and C24 and selling pine is something buyers will have to get used to again. The trick will be to keep it dry and turn it over before discolouration starts to show if the packs start to sweat under the plastic wrappers. Conversely, pine as a species generally accepts preservative treatments more easily than spruce.
The background situation should dictate a rise in replacement costs of imported material to at least keep pace with exchange rates, however, prices for structural softwood remain on the low side with UK buyers putting pressure on suppliers to rein in and defer increases at source in a bid to remain competitive.
This is likely to be a short-term tactic as shippers in turn have started downgrading the UK’s standing against other markets such as Denmark and the Netherlands where returns are much better, and to add a further dimension to the situation, events in North America have created a strengthening incentive for European mills to ship volumes across the Atlantic.
Widespread forest fires that led to a state of emergency declaration in British Columbia forced some of the largest sawmills and board producing plants to evacuate staff and close production. Companies affected include Tolko Industries Ltd, Norbord Inc (OSB mill), and West Fraser Timber Co. Across the region nearly 40,000 residents were forced from their homes. Other industries have also been affected by the fires and mining companies like Imperial Metals closed some of their operations extracting copper and gold.
As the wildfires spread, American lumber prices and futures at the time of writing this report increased sharply as the Canadian and US markets speculated on significant and growing shortages in the softwood supply pipeline. Of course, forest stands will have been destroyed and damaged, leaving mills in some areas low on future supplies.
On top of the fire disaster, there also lingers the uncertainty of US supply from Canada because of the ongoing softwood lumber dispute. The softwood lumber agreement between the two countries expired last year and the US has since imposed hefty anti-dumping and countervailing duties on Canadian lumber imports based on its perception that Canadian logs taken from Crown land are subsidised and should be subject to tariffs.
Canada was hoping to resolve the issue before the US kicked off a renegotiation of the North American Free Trade Agreement on August 16, and at the time of writing, speculation was mounting that a deal would be reached that imposed a quota on imports of up to 24% of US market share.
With such a volatile situation, the US market is becoming a growing opportunity for the Nordic and north European mills, while UK prices are now seen as “too low” and “too slow” by many shippers.
As one sawmiller put it: “UK prices have regressed in real terms and unless there is some awakening to what is going on in the other markets, the importers will find themselves short of wood when we start sawing again in September.”
It is not only European producers who see opportunities in the US. Investments equivalent to £71m have recently been announced in the New Zealand sawmilling industry, which has been increasing wood exports to the US over the past four years. Turning to the joinery and redwood markets, contacts report that supply is adequate and specifications are relatively complete, although decking sizes have been a problem. However, Finnish stocks are low and demand from the markets in Asia and MENA (Middle East and North Africa) is picking up. Swedish mills are enjoying a strong domestic market and prices are edging upwards in krona each month. Some mills are seeing an increase in trade with China although deliveries are being held back because of container shortages.
Russian exports to the UK have declined since the beginning of the year by more than 20%, ranking imports lower than those from the Irish Republic. Over 90% of Russia’s dimensioned softwood exports are sawn and of that some 65% are redwood pine, which at one time provided a major backbone of the British timber industry. The main increase in Russian exports has been generated from Chinese demand, which is forecast to continue growing through 2017.
In the UK, importers have commented on the strength of demand for planed goods, with most processors asking for extra lead times to profile skirting, architraves, matchboard and cladding. One contact said that this was the best year on record since 2006 and the company remained optimistic that this would continue until December, no matter what the analysts were predicting. Others registered the fact that the market is turning towards being supply-driven and having the wood ready to sell was a primary concern. In terms of standard profiles for site work, primed MDF first and second fix items are still gaining market share over natural solid wood.
The terrible events at Grenfell Tower in London have been a topic of conversation throughout the industry as inevitably the trade will need to reappraise performance standards for cladding when applied to large-scale buildings. There are several fire retardant treatments available on the market, but there are few that afford lasting protection in an external situation where the chemicals are ‘fixed’ against leaching and breakdown. Some species are impenetrable and only offer themselves as suitable for a surface coating, while others are more porous, allowing the chemicals to ingress under pressure.
Flameproofing is an expensive process as goods must be re-dried by kiln and this process requires as much skill as sourcekilning to avoid degrading the pieces.
To date, wood cladding has performed well in situ but its flammability and fixing designs will come under a high level of scrutiny, particularly the less dense species, which could burn faster. Given the negative publicity surrounding insulated composite materials to include foam-based insulations, wood’s natural credentials could bring it to the fore as a superior choice of material for cladding buildings.
