Summary
• There has been an improvement in demand for British timber since 2008.
• Tightening of supply from Scandinavia and the Baltics has benefited British production.
• There is concern that production will drop away when the fencing season finishes.
• The carcassing market is still very depressed.
• The panels market is more stable but doesn’t anticipate significant improvement until 2011/2012.

The Forestry Commission’s recently released statistics for 2008 make pretty grim reading. Softwood roundwood harvesting was down 7% on 2007 and the intake by sawmills and board mills was down 11% on both counts. As for UK output, sawnwood production was down 11% on 2007 at 2.8 million m³, while wood-based panel production was down by a whopping 28% at 2.6 million m³. (www.ttjonline.com/fcstatistics).

Harvesting and haulage contractors have felt the knock-on effects and in some cases have laid off workers and mothballed machinery – leading to fears of a permanent loss of infrastructure and expertise.

But while figures for this year are unconfirmed, there is anecdotal evidence of an improvement on the British-grown timber scene, albeit from a very low base.

Destocking

Destocking by merchants and retailers at the end of last year, along with the weak pound affecting imports, and a significant tightening of supply from Scandinavia and the Baltics, has shrunk stocks on all fronts. As a result, the demand for British timber is “healthy”, according to one forest management company.

However, activity levels are still way behind 2007, and this is discouraging some private growers from putting timber to market, resulting in the Forestry Commission upping its supply to processors. Consequently, “there is generally enough timber coming through the market that it’s not having a significant impact on driving the price up,” said a ConFor spokesperson.

In any event, the private growers’ caution should abate, with healthier demand and merchants and processors prepared to pay for the right parcels of timber, according to a forestry company reporting in ConFor’s Forestry and Timber News. The real challenge for the forestry contractor, he said, is finding the right crop to harvest in order to cater for those sectors of the forest products industry that are chugging along nicely – fencing, pallets and wood energy – while trying to control stock levels of slower moving product, such as carcassing material.

Better prices and markets

However, in general, “things aren’t quite as bad as some private growers think – there are better prices and better markets out there than they suppose”, said ConFor. “And it’s not as bad as in Sweden and Finland where millers have been forced into offering lower prices and that has dissuaded some private growers from bringing timber to market.”

Whatever the grower may think, from the sawmillers’ point of view, logs remain pricey. “Good sawlogs aren’t cheap,” said one. “You can buy cheaper ones but they don’t give you the yield or the quality of the finished product overall.”

“We’re only just getting through the last of the expensive logs that we bought in the 2007 bubble,” said another. “We’ve got some pretty expensive logs going through the system.”

Prices have obviously dipped since 2007, but the sawmills’ view is they’ve probably levelled off. “I think it’s balanced now, with the biomass plants underwriting the bottom level below which people will just sell it for burning, so I don’t think our log prices are likely to fall much below where they are now.”

Sawmill output

Stock is turning over pretty well at British sawmills, with production levels cited variously as “not far off 9% ahead of last year”, and “producing more at one of our mills than we ever have in the past”.

“We’re increasing output to build more product because of the demand that’s been caused by the lack of supply in the market,” said one sawmiller.

The positive spirits are due to “brisk” demand for fencing, decking, pallets and packaging. Fencing demand has been good for the whole sector, resulting in stock reductions and price increases, with some of the smaller mills pushing out lead times, although the larger mills are turning over stock in a matter of days.

The pallets and packaging market is also providing plenty of business, but it’s acknowledged that this doesn’t reflect the health of that particular sector. “I’m acutely conscious of the fact that there is something like 30% fewer pallets being made, but our order book is now out to six weeks and is closed on some items,” said one sawmiller. “It’s very much a case of import substitution – they are buying British because they either can’t get or don’t want to buy the alternatives.”

Change in products

British sawmills aren’t laughing all the way to the bank however. Volumes may be up, but due to the reductions in value and the fact that carcassing production is way off the mark, turnover and profits are down. And, as a UK Forest Products Association spokesperson pointed out, because some of the larger mills which would normally be producing carcassing have switched to producing more fencing and pallet material, this has impinged on other mills which only specialise in that type of production. “So we’ve seen some spiralling of prices, which is not at all helpful and, frankly, not necessary,” he said.

And there is a slight sense of unease surrounding the longer-term fencing and pallet fortunes, with garden products already coming “off the peak”.

Price rises on pallet production are virtually impossible to pass on, so an increasing squeeze on margins is on the cards. And, if the euro weakens and the pound strengthens, British manufactured goods will become less competitive again.

“Exchange rates have been helping domestic suppliers, but there is some uncertainty over what will happen at the end of the summer,” said ConFor’s spokesperson. “Combine that with the fact that fencing will drop off [at the end of the season] and we could be facing a double whammy of a softening euro and softening demand.”

The sawmilling sector is resigned to the fact that the more lucrative carcassing market isn’t likely to come to its rescue any time soon. Demand for some products – such as planed and eased edge – continues, but “bog standard KD carcassing is probably the most lacklustre”. And while price increases may be easier to pass on because “the groundwork has been laid by the importers and distributors and if the price has gone up by £10 or £20/m³ there’s no way we can absorb that”, there aren’t that many customers to pass them on to.

Carcassing market

“The government keeps saying it’s going to be building – but we can’t see it,” said one sawmiller. “That’s where the recovery will come from because it’s year round – it’s not dependent on the seasons like fencing, or on manufacturing sectors like pallets.”

Certainly any talk of “green shoots” is “a little premature” as, according to the Construction Products Association, builders’ capitalisation has been cut by about 50%, “so even if everything else was alright, they couldn’t simply ratchet it [construction] up to meet previous levels of demand.” And there are fears that the run on the taxpayers’ purse could put future public projects at risk.