Baltic producers have continued struggling against the weak exchange rate between sterling and the US dollar, and aggressive pricing by the Swedes in a bid to increase sales has added extra pressure to an already difficult situation.

Latvian carcassing producers in particular are making no secret of the fact that sales to the UK, and other European markets such as Germany, are more than disappointing.

New markets in Japan and the US are offering little as alternatives to Europe, mainly because of economic difficulties. Figures released by the Japan Wood Products Information and Research Centre demonstrate that during January, housing starts were 11% less than the same period in 2000. Japanese buyers are still actively visiting both the Nordic and Baltic suppliers, but their price targets are somewhat lower than the sawmills were becoming used to.

Latvian exporters are reluctant to reduce prices and are taking a more cautious approach, but mills with volumes still to sell have been accepting UK buyers’ offers at levels of around £3/m³ less than the price achieved in January.

According to one agent representing several Baltic shippers, there has been a marked improvement within the Latvian banking fraternity, which now regards the forest products industry as a significant sector in terms of credit and borrowing facilities. The larger sawmillers can therefore expect to find more funds available for investment in the near future.

Specifications produced to buyers’ requirements still command a premium over those produced as ‘falling’, but the differential achieved is very low in relation to the extra production cost. The ability to meet customers’ requirements has enabled Baltic producers to compete with the Swedes, who in turn have been offering extremely keen prices in the UK on the back of the favourable exchange rate between the krona and sterling. (At the time of writing, the exchange rate was SKr14.32/£1).

Low demand

Competition between Swedish sawmills is fierce and is being fuelled by concerns over low demand. Many independent mills are operating ‘in the red’ and, given the hardening attitude of Swedish banks towards the sawmilling industry, there is not enough cash available for shippers to finance heavy inventories of unsold goods.

This is having a major impact on prices as concerns over lack of consumption are causing some exporters to panic and move volume at all costs.

One Swedish shipper commented that further casualties among sawmills would be inevitable this year unless prices increased in the immediate future. Oversupply was still a curse and, unlike the Finnish producers who make cuts when necessary, the Swedes continue to talk without acting.

There has been one small change in the forward market for Swedish carcassing, and that is that offers are being limited to shipment until the end of May. A number of shippers who earlier in the year were prepared to accept contracts for shipments up to four months in advance, have now pulled back to a more short-term cycle in the hope that increased demand through March and April will lead to better prices for shipments from June onwards.

Some UK agents have reported growing demand for kiln-dried strength graded stock, which is welcome news to everyone. Difficulties arising from a shortage in whitewood supplies appear to be over and buyers are able to obtain most carcassing specifications in spruce without any redwood mixed in.

There is still a glut of 22mm whitewood boards on the market and prices remain weak in the face of poor demand. A growing volume of spruce is arriving in the UK from Russia, and a number of agents agree that it is only a matter of time before the mills start producing dry-graded wood at prices which will compete with both the Swedish and Baltic shippers.

UK terminal operators with good specifications have benefited from increased demand as a result of gaps in importers’ stocks, supporting the theory that importers and merchants are under-bought and are still working on short-term replacement cycles.

Importers cautious

Everyone is hoping that trade will pick up, but the underlying feeling is that there is ‘no guts’ to the market, making importers extremely cautious about forward commitments.

Turning to the redwood market, there is little change in the situation since the end of last year. Middle cut sizes continue to proliferate in substantial volumes and at discounted prices, while sideboards are in strong demand from the merchanting and DIY sectors. Demand improved during early March, and one Scandinavian shipper reported volumes reaching the same levels as the first quarter of last year, in spite of the erratic sales pattern. He added that, although volumes were recovering, revenues were down because both prices and profit margins had been squeezed by fierce competition.

Redwood reduction

Russian redwood supplies have been reducing, primarily because economic pressures and poor cash flow have prevented some of the large mills from converting logs to sawn goods. There were noticeable gaps in the UK landed stocks during February, and these appear to have widened further through March. This situation has increased the demand for forward sales in Russian and, whereas consignment stocks are usually left standing on the northern quaysides, significant volumes are arriving as sold.

Russian shippers are desperately trying to raise selling prices to the UK, but importers are still uncertain about the strength of the market and are resisting anything but small increases.

Looking at the redwood end-user markets, the DIY sheds are still on top followed by the joinery manufacturers who are achieving improved sales of windows and doors. The pine furniture market, however, has been fading for some time, and redwood sales to the manufacturers have been following a downward trend.

Accordingly, sales of temperate hardwoods, particularly North American, to the furniture industry have been increasing in popularity, and some importers have noticed that there is a growing preference for solid hardwood flooring over softwood.

On the whitewood side, the growing demand for timber frame housing is creating an increasing market for CLS studs. Although the production and supply of timber frame units is estimated to fall short of demand, some fabricators have commented that competition is tough at all levels and profit margins being achieved are less than expected.

Prices low

Softwood prices in virtually all product ranges are extremely low and, once again this year, heavy casualties are expected. As one shipper stated: ‘Collectively we are getting it wrong, and the old saying still holds true that the timber trade is not a business, it’s a rich man’s hobby’.

Unfortunately there is more than an element of truth in these words and a common agreement exists within the industry that it appears to lack direction or leadership.

There is no evidence of undue pressure from the end-user market to keep reducing prices; most price reductions have been initiated within the trade itself, either as a weapon to attract market share, or as a panic measure to sell over-production.

When shippers send out cheap offers to clear poor specifications that have been sticking, buyers have adopted the tendency to regard such offers as the market level for all specifications. Offers for distressed stock can pull the market down for other more normal specifications as rumour spreads.

In the current climate, it is the medium sized independent sawmills that remain the most vulnerable, particularly if they operate in the shadow of large integrated groups that can afford to take a loss on sawn timber while the pulp and paper divisions are making profits.

A rise in timber prices this year would bring a breath of fresh air and give the product a lot more credibility in the eyes of its customers.

The market in Ireland has been buoyant for a number of years and has proved profitable for Scandinavian and Baltic producers. However, Irish timber merchants have continuously bemoaned the profit margins that they have been earning, which illustrates the fact that softwood seems to be undersold in all market conditions, good and bad.

As the foot and mouth epidemic continues, forest areas have been closed and, at some point, UK home-grown mills will run short of logs. The planing mills in Northern Ireland are suffering from long delays in cross-border traffic to the south as lorries are held up for rigorous checking and disinfecting. The process can delay trailers for up to 15 hours.

If these delays spread to other parts of Europe they would seriously affect the transport of timber.

Canadian closures

In Canada, some mills have been cutting back production, particularly on the west coast where volumes to the US market fell short of the allowable quota. Prices of SPF studding material dipped by US$5-7 to the American market during February. They recovered in March although demand slowed down. Trade with Japanese buyers has been fairly subdued; the Canadians have made some concessions on price but generally levels have been upheld. There is no evidence that the Canadians will return to the UK market but, if the US lumber agreement is not extended, eastern Canadian mills may look to the UK again.

The news that the insulation requirements of Part L of the Building Regulations have been relaxed from a U value of 0.30 to 0.35 (TTJ March 17) has dismayed many in the timber industry. Some sources believe that the government has bowed to pressure from the brick and block lobby.

The lower value of 0.30 strongly favoured the use of timber frame and, although timber frame building trends are unlikely to be affected by the decision, it demonstrates how important it is for the industry to have a strong and unified voice.