• Hardwood sales have held up better than some expected.
• Demand for FSC-certified white oak continues to increase.
• European oak prices have firmed against the US counterpart.
• West African hardwoods are under price pressure.
• UK consumption of keruing is low but freight costs have kept prices up.

While no-one in the UK hardwood trade is pretending that business is anything other than difficult, demand seems to be proving more durable than in other sectors of the timber industry.

However, most sellers are reporting a nervousness among purchasers which is manifesting itself in a reluctance to buy forward and in large volumes. “If people can get away with buying little and often, they are doing that in preference to buying big box-loads,” according to one contact.

A number of leading UK hardwood players confessed to surprise at how sales had held up, but also to concern about the robustness of this demand going forward. One confirmed that his company’s turnover had actually increased during June and July when compared to the same period last year. “But the profit margin is down,” he added.

Cash flow caution

A note of caution was also sounded by another company reporting an increase in its hardwood-related turnover during the first seven months of 2008. “Some of our customers still seem to be busy, but cash flow has slowed and there are more bad debts around,” a spokesperson said.

One source reported an increase in the number of contracts agreed by his firm but an overall reduction in volumes. “It’s a just-in-time market,” he said. “Customers are watching things very closely and are not committing too far forward. When they buy, they are going for smaller volumes and want them in double quick time.”

Nowhere is this sales consistency more pronounced than in North American white oak. “We are selling it every day and prices are holding their own,” TTJ was told by one contact. “US producers are hungry for orders and so you can get some deals, especially during the holidays. But it is by no means a weak market.”

Across the range of popular thicknesses of white oak, the UK is said to be experiencing a reasonable balance between supply and demand; even in the case of 8/4 material, its oversupply status of earlier months has been lost – with some experts even predicting possible shortages in this specification once winter arrives in the US. At the same time, demand is continuing to increase for FSC white oak – to the extent that supply cannot be satisfied even though accredited material is carrying a premium of typically 10%.

According to statistics from The American Hardwood Export Council (AHEC), US exports of white oak logs to the UK soared 48% in the first five months of this year to 14,078m³ whereas shipments of lumber dropped 32% to 12,080m³. A similar trend emerged with ash: log shipments between the US and the UK jumped 25% in January-May this year to 2,008m³ whereas lumber deliveries slid from 6,118m3 in the first five months of 2007 to 4,851m³ this time round.

Tulipwood was alone among the mainstream species in recording increases in trade of both logs and lumber: shipments of the former jumped from 2,137m³ in January-May last year to 2,965m³ this year, while lumber movements to the UK climbed from 7,076m³ to 8,823m³.

Prices have been on the weaker side but have been underpinned by significantly higher freight rates as the US continues to grapple with container and vessel space shortages. At the ports, North American hardwood cargoes are being rolled over for up to three weeks before finding a berth. According to a leading trader, freight costs have effectively quadrupled in the space of 18 months.

Less interest in cherry

The figures from AHEC also tend to confirm trader feedback that UK interest in North American cherry is becoming more limited: in the first five months of this year, log exports to this country were only around a third of what they were in the corresponding period of 2007, while the lumber total fell from 1,463m³ to 788m³ over the two comparative periods. UK interest in hard maple has been maintained, although generally for small volumes, while red oak is still struggling to capture buyers’ imagination despite promotional efforts by AHEC.

On a more positive note, North American ash is reported to have made “something of a comeback”, with upward price pressure fuelled by, among other factors, increased demand from the Middle and Far East. And while black walnut prices may have retreated from their peaks, UK demand has remained strong for good-quality material. Increased demand has also been reported for European walnut although prices are significantly higher than those of its North American counterpart.

A similar story applies to European oak, prices of which have firmed in recent months to remain considerably higher than those for competing North American supplies, notably in the case of thinner specifications. Despite this differential, the majority of traders contacted this week described UK demand for the European material as consistent to healthy. Meanwhile, a handful suggested that their sales of European oak had not recovered since the rapid slide in the value of the pound from €1.43 to €1.25.

West African pressures

By contrast, the majority of mainstream West African hardwoods have come under price pressure in recent months, adding further fuel to suggestions that mills will continue to be closed or mothballed in the face of lower order levels and higher production costs. Sapele values have weakened in the face of subdued consumption and ample availability in the UK, on the Continent and in Africa itself. Utile is attracting “variable” prices but available volumes are proving to be readily saleable. Meanwhile, a more abundant supply situation for framire has pushed prices well below their levels of late last year and replacement costs are not being met. “It’s always a case of feast or famine with framire – and currently it’s feast,” noted one contact.

Despite reports of wawa log prices having fallen, this decline has been more than offset by higher production and transport costs, according to a contact. Furthermore, an early rainy season in Ghana has exacerbated problems in sourcing good-quality material. Purchasing levels in the UK are reportedly below normal for the time of year.

Mixed messages have been received about iroko prices although there is no disputing that demand from some of the traditional consuming markets – for example, Spain and Ireland – has suffered a steep decline in recent months owing to the severity of the economic downturn. Indeed, the Irish Republic is thought to be facing its first recession in a quarter of a century, with the country’s economy expected to contract 0.4% this year compared with growth of 5.3% in 2007.

In UK terms, dark red meranti does not appear to be taking away market share from West African sapele. Recently, prices of the Far Eastern species have been stable to weak as the rains have ended and mills have wood available to sell. “There are some bargains to be had,” according to one regional expert. As in most other parts of the world, forward buying in the UK has been no better than steady, with the customer focus falling increasingly on specifications of 9in or wider, he added.

Meanwhile, UK consumption of keruing has been quite low although prices have remained firm on the back of rising freight costs. Demand from the key trailer bed market is reportedly slack.

Trade with Brazil

Trade in hardwoods between Brazil and the UK remains difficult. The permits required to move material are generally slow in coming through, leading many buyers to regard Brazil as an unreliable market and to take their business elsewhere. Furthermore, cedar prices are well above those of equivalent African species.

Decking grades such as ipe and massaranduba are continuing to cross the Atlantic in reasonable if “sporadic” quantities although, once again, prices have remained on a steadily upward curve. Meanwhile, UK interest is said to have diminished in some of Brazil’s secondary species, such as tatajuba.