British mills enjoy strong demand

Summary
• Log extractions from UK forests were down to 20% of normal levels in January.
• Private growers are not returning to the market in any great number.
• The weak pound is still benefiting British producers.
• The agricultural sector remains strong.
• Concerns are growing surrounding possible supply displacement by the wood energy sector.

Fate was sorely tempted when TTJ’s previous British-grown market report was being researched last November.

“The weather has to be exceptionally bad for it to have an effect on log availability through the winter,” was the view of one contact. “Hoist by my own petard,” was his comment this time around. “It was like hitting a brick wall.”

Having enjoyed a strong finish to 2009 and “unprecedented” demand in the run-up to Christmas, in January the UK’s sawmilling sector returned – where they could – to yards under thick snow and frozen sawlines and treatment tanks. Worse still, log extraction from forests under several feet of snow was nigh on impossible. In the first weeks of the year, deliveries from UK forests were down to 20% of normal levels and some mills experienced a 75% reduction in raw material supply – some were down to just half a day’s stock.

An emergency meeting was held by Forestry Commission Scotland, Forest Enterprise Scotland, the UK Forest Products Association (UKFPA) and the Confederation of Forest Industries (ConFor) on January 8 to discuss ways in which a reasonable log supply could be maintained. This was gradually achieved by diverting activity to the more accessible forest roadside stocks and pushing for public roads to be cleared.

Even when the snow disappeared (and it remains in high altitude forests) prolonged sub-zero temperatures added to the misery, weakening forest roads and making timber processing tortuously slow. For some of the more northerly mills the temperature remained firmly below zero until the first week in March. Frost saws could be used but only operated at a quarter of the speed of normal saws, and yards, timber packs and lorry beds had to be cleared and gritted. Loads dropped from eight a day to two, according to one mill and throughput was down 50% “across the board”.

Log supply

Log supply certainly tested mills’ buyers who had to work hard to source logs from alternative suppliers – and at higher prices. The situation is now easing, but there is still a need for private growers to come back to the market, particularly now that demand for British-grown timber has prompted an increase in production. “Roundwood prices in the UK are sufficiently attractive to tempt private growers back and there is a good, ready market for their product,” said the UKFPA.

For the first time in around 18 months, production levels are said to be approaching capacity across the sector. Indeed, some mills are at full or even extended production and “physically can’t work any more hours – we’re squeezing every cubic metre out of the business and we could probably sell every cubic metre twice or more over”.

While delighted to see customers queuing up for their product, British producers are under no illusions that the demand is a result of the weak pound and import substitution and that this is unlikely to continue indefinitely.

Minding the price gap

For the time being, however, and despite a series of “fairly steep” price rises, British material is still £20-30/m³ cheaper than imported. And each time the gap between the two narrows, the imported price rises again – another is predicted for June/July – enabling British prices to creep forward again. “We don’t want to close the gap completely because it’s creating a demand in what is a pretty quiet market – it’s very good for us.”

The low stock position arising from the increased demand and the log supply difficulties of the first quarter mean British mills are able to push price rises through without much need to compromise, but there is some “nervousness” that there is only so far that production can be pushed before roundwood supply becomes an issue.

“It’s an interesting time for the domestic sawmilling sector because, thanks to the exchange rate, it has an opportunity to capture market share and also get a good price [for sawn timber],” said a ConFor spokesperson. “Having a stronger milling sector would benefit the domestic sector generally so it would be good if supplies were coming through from private growers to support mills in holding on to that market share. It would be a shame if mills weren’t able to exploit it due to an inability to supply.”

Output high

Output is high across all products, from pallets to carcassing. “We’re sold out on palletwood and are fully committed to our existing customer base,” said one producer, while another said his mill had been approached to supply palletwood to Ireland.

“It’s very dynamic,” said another, adding that the first three weeks of March there was “the largest, most rapid upward price movement I’ve seen in 20 years”.

There is also a view that a palletwood shortage may be looming. “A number of buyers had gone out to Chile to source bulk shipments to bolster against the lack of British or Irish [palletwood], but because of the earthquake they’ve all been cancelled. I think there’s a very real possibility there won’t be enough palletwood to go around.”

Stocked up for Easter

Fencing material is also in demand. DIY and garden centre chains stocked up in expectation of strong Easter sales, with one Welsh producer implementing a 12% price increase on the back of consumer demand. There is a concern, however, that the fibre required for this product is under the most pressure in terms of stockholding and will require “some serious managing”. One contact also expressed the view that, with the economy slowly recovering and people becoming bored with the “staycation”, less time might be spent in or on the garden this year.

The agricultural fencing sector started the year well, despite the weather and demand for treated redwood posts continues to grow, prompting one mill to announce a price increase for its agricultural range from May 1.

On the carcassing front, demand for agricultural purlins is exceptional – thanks, ironically perhaps, to farm buildings having to be rebuilt following the snow – and sales of long lengths, PAR, eased edged and treated material are very buoyant. “There isn’t any carcassing product that is slow or sluggish,” said one contact. “It’s onwards and upwards.”

Indeed, the realisation among buyers that British-grown timber is fit for purpose is a reward for sawmills’ efforts to improve their value-added proposition and they are already promising further investment to take full advantage of their new-found favour. “We have a lot of plans in place to increase our production,” said one.

Another benefit of the changing buying patterns of the past 18 months or so has been the strengthening relationship between producers and customers. “Ten years ago an enquiry would be sent out to six different suppliers and the one that came back with a decent price and the availability got the order. Now it’s about understanding customers and what they want over a period of time.”

“Customers are far more committed to their supplier and are being more organised about their buying,” said another contact, cautioning however, that while this helps the mills, “it’s not helping spot buyers because there’s not a lot left for them”.

Co-products

There continues to be a ready market for co-products from board mills and the agricultural sector, but the wood energy market, bolstered by government subsidies and incentives, is causing blood pressures to rise. On the one hand it’s providing sawmills with another revenue stream, on the other it’s threatening to displace supply for panel production.

With a new wood energy development announced almost every day, the fear is that the demand for fuel will impact not just co-product and small roundwood supply, but the rest of the wood resource.

“The damage that could be done to the domestic forest products industry is nightmarish and the threat is very, very real,” said UKFPA’s spokesperson. “Tensions are already developing in the supply chains and wood that would ordinarily be available for sawmilling is now going into boilers – and that’s a horrifying prospect.”

Lobbying politicians

With the general election looming, all the political parties have been lobbied by forest products organisations. “We’ve talked to them about the benefits the sector provides in terms of jobs, of delivering for a low carbon economy and of the threats to the sector from large-scale energy generation,” said ConFor.

“We’ve also told them the sector isn’t delivering on its full potential because we’re not seeing the supply of wood coming through that we could. We’re not planting the areas of forest that we should and we’re not seeing many hundreds of thousands of hectares of woodland in England being managed in a way that would be beneficial not just to the timber sector, but for biodiversity.”

Some of that lobbying has already paid off, with the government recently announcing a policy recognising that non-native conifer plantations have a crucial role to play in timber production. n