As the softwood trade entered the fourth quarter, it was burdened with higher stock levels than anticipated in both landed cargo at the quayside and at the exporting sawmills.

For the first half of this year, UK softwood imports were reportedly almost 9.5% higher compared to the previous year, which effectively added 300,000m3 in terms of volume. The monetary value of the goods imported, however, increased by less than 6%, giving an overall indication of a price drop.

The lead-in problems for UK traders started with some importers over-stocking in the early part of the year, over fears that imports could be hampered due to Brexit uncertainty over a March 29 deadline, which was then missed and extended. With too much stock at the ports and too many sellers panicking over quay rent, sellers turned to reducing prices to move their stock. This in turn led to a devaluation of inventory values, reversing some of the trading benefits achieved in the previous years.

Adding to the initial Brexit effect, higher forest extraction activities in Germany and Sweden were caused by a bark beetle (Ips typographus) infestation, which affected large areas of spruce forest stands. Once a spruce tree is attacked, the beetle destroys the cambium layer, which has the effect of ‘ring barking’ the trunk, causing the tree to die.

Affected trees need to be removed fairly quickly as the condition makes the fibre vulnerable to a rapid degrade by wood destroying fungi, reducing the potential value of the logs. Certain areas were also affected by storms, with up to 282,000 acres of wind-throw recorded through 2018 and up to March this year in Germany.

These issues have contributed to what has been a highly volatile softwood market, which witnessed a significant reduction in prices within the short time span of only a few months. The situation also forced down replacement prices on the forward market and eventually slowed mill sales.

As an additional factor, the supply chain also had to absorb the effect of sterling’s fall against other currencies. The pound has responded to the prospects of a deal or no deal Brexit almost on a whim and sterling moved as far down as €1.065/£1 in August before reaching a high in September of €1.133/£1, a swing of 6%. The euro rate settled at an average level around €1.12/£1 in September. Against the Swedish kronor, sterling followed a similar pattern, hitting SKr11.506/£1 in August and peaking at SKr12.133 in September, a difference of 5.5%. The rate averaged out at SKr11.9836 in September.

While beetle-damaged logs were on the market at discounted rates in Sweden and Germany, fibre costs in the Baltic states only eased back by a few euros, so the Latvian carcassing mills found themselves having to dig deep into reserves to stay in a falling market. Without some light at the end of the tunnel in terms of log costs and selling prices, there is a danger that some Baltic mills will be forced to stop production. In terms of log costs against selling levels, the Finnish softwood industry is suffering in the same way as the Baltic states and finding it harder to compete with Sweden.

Even with Brexit and a weaker pound, the UK market has remained one of the more sought after by exporters. In spite of the difficult backdrop to the British economic position, shippers have retained confidence in the longer view. All producing countries’ export volumes to the UK grew in the six months to the end of June, but in terms of market share, Latvia’s rose by approximately 1% over last year, maintaining its position as second largest supplier to the UK after Sweden. Sweden’s UK market share dropped by three points from the same period in 2018 to 41% in the first half of this year which equates to a figure of 1,439,500m3.

In the imported softwood market, price pressure has extended to both strength-graded softwood and joinery and industrial grades, while home-grown mills have been more successful in the sawn fencing and landscaping trade, where they achieved higher prices for their least processed timber.

This position has arisen before, where planed kiln dried and grade-stamped material has fallen below sawn unseasoned sections due to the rapid price reductions in imported strength-graded wood.

This year, the changes were much quicker than previously experienced, and while the home producers cut prices to respond to imported levels, the traditional gap between the two closed significantly. This in turn is likely to drive merchants away from C16 UK production and more towards imported C24. Irish production was pulled back between 8-10% during the summer to try to reduce mill stocks, but sales were down by a similar figure leaving inventory levels up to 15% higher through August and September.

For most of 2018, a perception of shortages prevailed and it was a sellers’ market, but that has since shifted considerably in the opposite direction. The crash in prices this year has undermined buyers’ confidence in making commitments too far forward and created a very cautious market. Many merchants have delayed buying until the very last minute to get the best price they can on the day. For the time being in early October, the market appears to have, at last, stabilised.

For UK importers, increased raw material supply and over-production gives rise to concern, as any glut in the market would continue to push prices down even further. Global demand and its effects have never been more important in drawing away excess supply, and one of the largest influences in the market is China.

The US-China trade war has had a negative impact on US exporters, who were reluctant to ship inventory due to uncertainty over whether the levels and timings of tariffs would affect cargoes to China while in the middle of a shipping voyage.

Russian supply has been running well with the growth of China’s Belt & Road Initiative (BRI), which is a huge logistical infrastructure programme. Russian exports last year grew to account for more than 60% of Chinese timber imports, with a volume of over 15.5 million m3. As part of the flow of goods, Europe is also connected to the infrastructure with 15 countries sending over 2,600 block trains to China last year.

China was sending 30 trains to Germany a week loaded with exports, and these returned to China filled with logs. The BRI goes furthest west to Duisberg in Germany, using the overland ‘silk road’, and the maritime route finishes furthest west in Rotterdam. Some traditional suppliers to China such as New Zealand have been pushed back by this link as European softwood has replaced their volumes.

The timber trade, like any other, is waiting for some clarity on the UK’s withdrawal from the EU. With the current uncertainty comes caution, and a number of contacts have spoken of getting reduced credit insurance cover on their customers. Others have reported a reluctance by the banks to continue or extend overdraft facilities.

Although the housing market has been successful, the banks have been keeping an eye on the heavy construction industry, where losses and failures have occurred. Projects and investments have been held back until there is some definitive news on Brexit. Both suppliers and subcontractors to the large construction companies are more likely to be regularly re-assessed in terms of their credit risk.

In the housing and construction sectors, there is a threat from negative publicity regarding timber’s performance in fire. There was no doubt in the trade’s mind that in the wake of the Grenfell disaster and some subsequent fires, combustible materials would be written out of new specifications.

Generally speaking, the issue would relate to high-rise buildings, but there are insurers taking the issue to its extreme and even ordinary houses with small amounts of wood cladding have been refused cover and subsequently mortgages refused.

The TTF and TRADA are putting together website information to supply facts and guidance on the issue, but many contacts in the trade have expressed concerns over the future demand for timber cladding.

Getting fact over fiction is always an arduous task. Many in the trade will remember the bad press timber frame once gained over erection faults. Good practice and fit-for-purpose treatments, craftsmanship and technology have never been more important to guarantee timber’s future as a building product.