The Swedish wood industry is moving towards better times, Mikael Eliasson, director of Swedish Wood, told the annual Timber Market conference in Karlstad in November, and that’s certainly reflected in the view of shippers.
A combination of the decline in the global market, high log prices and the krona holding its strong position over the past few years has taken its toll on mills’ bottom lines. Most have suffered losses but companies’ third-quarter results reveal some have returned to profit, while others have at least reduced their deficit. "This year has been difficult but better,"
one shipper told TTJ. "The business cycle is improving; market consumption is improving overall, especially in important markets such as the UK, the US and China."
Although mills’ finances may be looking healthier they still have a lot of ground to make up for the years of poor returns.
Raw material costs
Added to this, while sawn timber prices have risen, so too have log prices. "In the first quarter we’re looking at log price increases of SKr27-55, so that’s up to SKr90 on sawn product," said a sawmiller. However, if growers aren’t happy with the price, they won’t supply the market and one shipper reported experiencing log supply problems since the summer.
"We’ve been losing shifts in our sawmills owing to a short supply of logs. As a result our ready stock is at its lowest in 10 years," he said. These potential gaps in some specifications coincide with improving demand in the UK, which has been spurred largely by increased housebuilding activity.
"UK demand greatly improved over the second half of 2013," said a shipper, but he added a note of caution: "I feel, in the grand picture, the UK is still fragile. Yes, things are better but our customers are still in a very competitive place with margins."
November and December were unusually busy and a lot of business had already been secured for Q1, he added.
"Our customers have done the right thing by securing specification for Q1, which is important, because stocks are low," he said. "The big question is, where do we go in Q2?" Another contact reported that his company’s volumes to the UK had increased this year, and redwood products and TR26 were doing particularly well.
"Overall, volumes have declined but that’s been good for the market because it’s firmed prices up and brought a more balanced supply and demand," he said.
The Middle East, north Africa and Asia are also busy placing orders for Swedish material and, with the Middle East in particular prepared to pay higher prices, some redwood specifications could be in shorter supply in other markets.
The exchange rate has also moved in Swedish exporters’ favour but one shipper downplayed the significance of currency movements because it’s a factor exporters have to live with. "The krona has helped us a little bit but it can always change back," he said. "We can only trade on what’s available to us."
However, another shipper believed the exchange rate had a greater impact on profitability than any other single factor. Another pointed out that any gains made through the weaker krona had been lost in the rising price of logs.
According to the latest figures from the Swedish Forest Industries Federation, for the 10 months to October, Sweden’s exports of sawn and planed softwood were 3% lower than 2012 but in October volumes rose 2% on the year.
UK import volumes
The latest statistics from the Timber Trade Federation show that in the nine months to September, Sweden’s share of the UK market fell from 48% in 2012 to 46% in 2013 but it’s not something that overly concerns shippers. "It’s not market share in a true respect; it’s trade volume going up and down," said one, adding that what was more important was the decrease in UK consumption.
And while the UK’s home-grown mills have gained market share in recent years, he did not regard that as competition for Swedish products. "British sawmills have developed not only in volume, but also in what they can do with the wood; they have better mills, better equipment and they are well managed," he said, but he added that Swedish material could more easily meet the requirements for construction and appearance grades.
So as 2013 drew to a close, Swedish mills were generally feeling more positive about the UK market for 2014, as confidence in the economy grows, even though it is from a low base.
"I think things will pick up more in the new year. Construction activity will continue to improve in Q1 and Q2, and I think we’ll see price increases too," said a sawmiller. One thing that would be a concern is if supply suddenly changed, whether through mills increasing production or material being diverted from quieter markets but he thought that was unlikely.
"I don’t expect mills to increase production next year. They’ve had such a bad time for so long they’d be reluctant to increase capacity when global consumption isn’t increasing dramatically. We’ve gone through the process of the more we produce we’ll get the cheapest unit price going through the mill but all they’ve done is multiply the losses they’ve made because they’ve produced too much and sold it at a lower price."
