Trade winds set fair for 2015

2014 was a strong year for the timber industry. The key driver was private house building, with output likely to have increased by around 15%, against an overall construction increase of 5%.

This year there's widespread optimism that private housing starts will reach double figures again and, with other timber use segments performing well, and indications that public sector construction should pick up after the recent austerity years, signs overall for 2015 are positive.

Growth is strengthening in the wider economy too. Admittedly, performance has been uneven across sectors and regions, but recent data points to a broadening of the growth story. Earlier forecasts that it would hit 3% last year may not come to reality, but the consensus is for a more maintainable 2.3-2.5% for 2015 and close to that in 2016.

It thus seems that UK growth could be returning to trend. But what could go wrong? The anaemic performance of the Eurozone economy and attendant deflation remain significant risks, as does escalation of tension in Ukraine/Russia and/ or the Middle East. Closer to home, developments in Greece after the snap election could yet rock the Euro area. And we can't ignore our own General Election and the uncertainties of policy shifts, if a viable coalition can't be formed. These factors combine to suggest some risk to UK growth remains.

Looking at the global timber picture, strengthening US recovery is the key factor. Housing starts have been slow to recover from their 2009 low, but over the next four years could rise by 135,000 p.a., creating enormous wood products demand.

US supply should crank up, but imports will rise too. In fact, sawn softwood imports were already up by 14% in the first 10 months of 2014. Canada has traditionally supplied over 90% of US import requirements, but its production is likely to peak in 2015-16 due to harvest cutbacks. The outcome could be more interesting opportunities than usual for European exporters. Combine this with continued growth in Chinese and other developing market imports, and it's possible to envisage a softwood supply squeeze within two years.

Although UK timber market fundamentals look strong, domestic producers are unlikely to see relief from import competition,while Continental demand remains subdued and sterling retains its relative strength against the Euro and SEK. So while UK demand should continue to provide volume growth opportunities, slack in the system means strong upward pressure in timber prices generally seems unlikely.

At some point over the next two years, however, supply constraints are expected to emerge through a combination of Euro area recovery or broader global demand drivers. So 2015 seems set fair for timber on the back of continuing strong construction. But any of the risk factors have the ability to cause wobbles. And at some point in 2015, the official interest rate will begin to rise. This shouldn't stall recovery, but businesses should factor it into plans.