Many in the British-grown timber sector are reflecting on the difference a few months and a change to the currency exchange rate can make.
From being in a position of great strength on the domestic market, with Scandinavian timber costing around £40 more per cubic metre less than British-grown as recently as late 2013, that differential has been slashed to £7-10/m3.
Subsequently, as southern Swedish mills deal with their oversupply issues by targeting the UK, prices for British-grown timber have crept down as producers fight to keep market share.
The reduced price of sawn timber has brought the consistently high cost of logs into even sharper focus, although availability has remained good since low activity over Christmas and the new year led to some capacity being taken out of British mills’ production.
"Generally the timber is out there, it’s just a question of whether mills want to pay the price the suppliers are expecting," said an industry spokesperson. "There is still an appetite amongst the suppliers to hold prices, or even drive them further up."
But while overall log supply is good, there are growing concerns about the future availability of FSC certified material, particularly in north-east Scotland and north-east England. As mentioned in the previous British timber market report (TTJ December 2014), some of the small and medium-sized private estates are baulking at the cost of FSC certification and withdrawing from the process.
There is some sympathy – theoretical, at least – for private growers who are faced with not just the cost of FSC certification, but also a broadening of scope for the auditing. "The audits are increasingly concerned with issues that are less to do with what private growers would regard to be forestry matters," said an industry spokesperson. "Child exploitation, for example, isn’t an issue in British forestry and things like that are already the subject of scrutiny by other agencies."
There are also strict controls coming in on which pesticides can be used. "Very little pesticide is used in forestry compared to other sectors, but what is is absolutely intrinsic and there aren’t any meaningful alternatives out there," said an industry spokesperson.
"It’s creating a view among quite a few people in the private sector that this certification is something they just can’t work with. Even if they can sell certified timber at a premium, if the restrictions applied by FSC certification make forest management so difficult, then that price differential can be eaten up quickly."
The pulling back on FSC certification is now having a more noticeable effect and while the larger mills are still comfortably within the 70% threshold for FSC mixed status, anecdotally there are some that are borderline.
"There has been a huge increase in production from British mills in recent years, but there hasn’t been the same percentage increase in FSC material," said an industry spokesperson.
"It’s biting at different speeds. Some are saying they can see they might have problems a year or two down the line while others think they’ll experience them in the short to medium term."
The question of whether private growers can find buyers for uncertified timber remains largely unanswered. Clearly they can for some material – for local markets, for example – but for those supplying larger mills with contracts with the national merchants and distributors who must buy FSC certified timber to satisfy their own chain of custody demands, it’s hard to see to whom private growers will sell.
Private estates now account for more than 50% of log supply, a percentage that is likely to increase over the next 20 years or so as Forestry Commission production is forecast to flatten. It’s an issue that needs to be grasped, and quickly.
Confor is seeking talks with FSC to discuss this "fundamental problem".
"Something has to change," said a spokesperson. "If we carry on as we are it’s a downward spiral and that doesn’t work for anyone."
There is certainly a feeling among some sawmillers that private growers should support the domestic sector, particularly in the fight against imports.
Mills report demand for sawn timber slowed during the Christmas period and into the new year and attribute that unequivocally to the surge in imports, specifically Swedish timber.
"We’re still confident that the overall market is bigger than last year, which was bigger than the year before, but the sheer volume of imported timber now coming into the UK is swamping that growth in consumption," said a major sawmiller. The latest Timber Trade Federation statistics show that around 1.2 million m3 more timber was imported into the UK by November 2014 than for the same period in 2013, representing an increase of just over 15%. Softwood imports rose 17.3% between 2013 and 2014, up from a rise of 5.5% between 2012 and 2013.
"The UK market has grown, but not by 1.2 million m3," said a sawmiller. "We would guess it grew by about 600,000-700,000m3, so there is an awful lot of unsold timber out there. With what’s happened with the exchange rate it effectively means the importers can drop the sterling price and not be penalised. I think we’ve seen the headline imported prices fall by £30-35/m3 from this time last year."
And it’s not just Swedish timber making its presence felt. Baltic timber is becoming increasingly attractive for pallet and packaging producers – and there is more in circulation since Scott Timber’s arrangement to buy all its pallet wood from BSW Timber.
German timber, too, is making inroads, although "more in the detail than the volume".
"In the last three months we’ve seen people switch back to German supply for heavy section material and 20ft agricultural purlins," said a contact. "We’ve pretty much had free rein on that for the last two years but now we’re having to be much more competitive."
As mentioned, some capacity was taken out of production before Christmas and mills are sticking to normal shift patterns, cutting the odd one here or there to keep stock levels well balanced.
Yards are pretty full and this, said a sawmiller, is a good place to be as producers wait, almost as one, for the starting gun to go off.
January 2014 got off to a flyer, of course, thanks to three major storms in quick succession that led to producers and merchants running full pelt well into the summer when stocks finally stabilised. Sawn timber volumes delivered in January were good, "for a January", but with relatively benign weather thus far, no one is expecting the same bumper market this year and many expect a lag in demand.
Some identify the already full stocks at their merchant customers as the reason and others point to news of a period of so-called negative inflation, which could delay some purchasing activity as buyers wait for prices to drop further, although as one contact put it, "someone has to blink first".
"Everyone is patting the government on the back because of deflation and the strength of the pound but that doesn’t help manufacturers," said a sawmiller.
"I’m not saying we’re going to collapse the market price but if we do there’s likely to be a bit of a bloodbath out there and some of the smaller companies will suffer as a result." Standard carcassing and CLS are currently the products most affected by imports. Domestic KD carcassing prices have fallen by around £20/m3 from their August 2014 peak while sawn ungraded prices have also fallen, although not as much.
However, there is confidence in the construction sector – a confidence manifested by James Jones’s investment in its I-joist plant at Forres, for example. The Construction Products Association predicts 10% growth in private residential building and 8% growth in commercial building this year.
"Predictions of double-digit growth in new build activity, alongside a strong RMI market bodes well," said an industry spokesperson. A pick up in social housing construction would be welcome, added another.
As mentioned, the fencing sector looks set for a more normal year and pallets and packaging business is referred to as "steady but not spectacular" or as "tough", with prices being quoted at around £10/m3 below those of Q4 last year.
"Activity is continuing but there is a lot of price pressure, which makes it a difficult market," said an industry spokesperson. "The volumes aren’t there in the way they have been in the past so it’s a very difficult market to sell in to."
"We’ve had two years when we could name our price," said a sawmiller. "Now we’re having to do what we’re paid to do and compete again."
Looking ahead, despite the fact that their customers already have a lot of timber in stock, mills are generally positive about their prospects.
"The traditional Easter spike has been smoothed out and the only thing that might change is if we hit the Easter weekend and it’s great weather and everyone gets out in their gardens," said one. "But you can’t plan your business on whether it’s going to rain or not over Easter. The fact is we always sell more wood in April-June than we do in January-March, so there will be a pick-up." And as for the spectre of imported timber denting domestic producers’ confidence – not a bit of it.
"We’ve established a bigger market share and we’re not going to go away now," said a contact. "What happens on prices is completely outside our control now. If Swedish prices come down, then so will ours. We’re not going to cut shifts, close mills and give up."
