Trading trends outweigh Brexit impacts

20 March 2017


In the short-term rising consumption elsewhere and supply trends look set to affect UK softwood import trade more than the Brexit vote, writes Sampsa Auvinen, CEO of Norvik Timber Industries, board member of Bergs Timber AB and president of the European Organisation of the Sawmill Industry

“Brexit has created uncertainty” – that’s what we’ve been reading since last summer. But the UK economy continues on the same path, with encouraging construction activity and timber consumption.

According to preliminary statistics from the Department for Communities and Local Government, 35,580 houses were started in England during the fourth quarter of 2016, 14% up on the same period in 2015. The year’s total was 153,380, a 5% increase.

The British Bankers’ Association also announced that 44,657 house mortgages were approved this January in the UK, a 2% dip compared to January 2016, but 2% up on the previous month.

And finally the Royal Institute of British Architects Future Trends workload index rose to +24 in January from +17 in December, while future workloads confidence is at pre-Referendum levels.

But while post-Brexit uncertainty isn’t apparent in current trade, things won’t necessarily stay the same. Recent information is that homeowners are waiting up to ten months to sell as high asking prices and economic uncertainty have weakened the property market.

According to The Times, estate agents forecast that UK home transactions will fall 11% this year to the lowest levels since the financial crisis.

With the UK importing about 63% of its sawn timber, the volatility of the pound has also created challenges for both producers operating in Euros and Swedish Krona and British importers and merchants.

The only consequence so far has been increased cost of replacement stock. This has been passed on from UK importers, but has it found its way to end-users yet? This will happen. In fact there are already media rumblings about retailers raising imported product prices.

But the timber trade is resilient and adaptable and will find a way through. The UK is a significant market for many sawmills and they will keep an eye on its developments.

But they will also monitor strong demand trends elsewhere, like China and the USA, to fill gaps or improve profitability.

Sawmills and importers alike must remain prepared for either strong demand, potential supply shortages and rising prices, or weaker demand and depending on options in other markets, falling prices, both of which scenarios provide challenges.

The likelihood is that a balance will be found between the two, but whatever the 2017 outcomes, the UK will still need to import timber products and simple economics will prevail.

Considering the UK timber trade one should also focus on the supply side. Recent consolidation in South Swedish sawmilling and capacity closure has reduced its production by about 6-7% on 2015’s 7.6 million m3.

This will impact trade as South Swedish sawmills are the largest providers of UK construction timber imports.

Uncertainty with regards to UK departure from the EU will undoubtedly continue, with the eventual outcome of negotiations and the impacts on British and European economies not expected to become clear for up to a decade.

But in the short-term, competition from other markets and South Swedish output reduction will probably impact trade more than the outcome of Brexit.

Sampsa Auvinen, CEO of Norvik Timber Industries, board member of Bergs Timber AB and president of the European Organisation of the Sawmill Industry