As the year-end approaches, there is generally a more upbeat feeling amongst UK traders. The softwood market appears to be much stronger and healthier than in previous years, with prices holding firm and, in spite of the fact that overall volumes are currently sufficient to meet demand, gaps in specifications are still apparent.

The mood is shared among shippers who see the UK re-emerging as a stable market with potential for growth in 2014. One of the main contributing factors from the Swedes’ perspective is sterling’s recovery against the krona. After a substantial weakening during March of this year, when it fell by almost 11% to SKr9.58/£1 from a high in December 2012 of SKr10.74, it has rebounded. Current trading levels are around SKr10.63/£1 – approximately 4.5% above the rolling 12-month average.

This improved exchange rate, combined with importers’ willingness to pay higher prices in sterling, has put the UK in a much stronger position to compete for supply against some of the higher paying whitewood markets such as Denmark and Holland. Swedish producers are expecting market prices to remain firm, and demand to exceed supply in the new year, spurred on by log shortages and high fibre costs. For shippers selling in euros, sterling has also improved, albeit within a narrower band of exchange differences. The timing of the currency swings coincided with the movements of the krona but, from a high of €1.2365/£1 this time last year, sterling fell by around 7.5% in March to a low of €1.1506. Currently valued at €1.19, the pound is still 4% below the value recorded in December 2012.

Euro exchange rates affect prices from the Baltic states, and they are vital to the competitiveness of Latvian exporters’ trade with Britain. As with Swedish sawmillers, Latvian mills are also short of sawlogs, but the situation is more acute at many mills and is forcing them to reduce production. The strengthening presence of Chinese log buyers is being felt across the whole region, and sawmillers speak of being outbid at log auctions as prices are forced up. In the three Baltic states, log prices have been rising on a monthly basis since October, and are even subject to weekly increases that will, in turn, force sawn and planed products prices even higher.

Log shortages have made production planning at the mills difficult by reducing optimum running cost efficiencies. Many shippers are being forced to play catch-up after are prepared to pay the higher rates to secure supply.

As well as seeing an improvement in the UK, Swedish producers have recently obtained some price increases from other traditional European customers for the first quarter and anticipate further increases from these markets. As an additional confidence booster to the Swedes, buyers from the Middle East have stated that they would pay 10% more than other markets to secure agreements for the first half of next year, at whatever those levels might be.

From a raw material cost perspective, one common factor shared by Baltic and Swedish whitewood producers is the lack of demand from the pulp industry and a slowdown in the market for residues (biomass), which is becoming a far more competitive trade in its own right. The result is that there is more upward price pressure on sawn timber to compensate for the reduced percentage yield from a log, and a lower price contribution from the by-products.

Redwood carcassing

In 2014, UK buyers will continue to see an increasing proportion of redwood carcassing because of a higher volume of pine logs at the mills. From a strength-grading perspective this will not affect the product, as redwood fibre is generally stronger than spruce. Although pine is not as clean in terms of knot sizes, the log quality being harvested is satisfactory for C16/24. With more than 70% of all carcassing now being treated in the UK, there is reduced danger of sapwood discolouration unless the timber has been allowed to sit too long before being impregnated with preservative.

Staying with carcassing grades, the British softwood industry has witnessed a strong year’s trading, and home-grown timber prices have remained below imported levels without being subject to currency fluctuations. Homeproduced C16 has taken a substantial share of the timber merchants’ volume away from imported products and this trend is expected to continue through next year.

Stocks of imported material

Some buyers have continued to maintain a good stock of imported material, particularly in pure C24, to complement domestic production for structural use, and because some merchants remain wary of the longer-term dimensional stability of home-grown. This issue was highlighted earlier this year when it was reported that national housebuilder Bellway plc had concerns about distortion that could occur in stud partitions constructed from British softwood.

TTJ’s report also noted Bellway ‘s comments that it was considering metal studding components as an alternative to solid timber studding. To speculate, this could further erode the market share of solid softwood in newbuild housing. Softwood volumes have already been reduced by the transition to smaller roof timber cross-sections in trussed rafters, MDF profiles, chipboard flooring and I-beams.

According to some in the construction sector, the structural timber in a typical modern house settles between 8-10% post occupancy, and softwood installed at the BS 4978 level of 20%, (usually kilned to around 18%) will still undergo noticeable shrinkage. The growth patterns of traditional CLS from North America or the Nordic region are generally considered more stable under such conditions.

Initiatives in the industry have started to produce structural softwood dried to around 12% and treated with a special water-repellent coating and a preservative. This has been found to be successful in tackling the issue of undue shrinkage while protecting joists from weather conditions during construction.

In the redwood market, exports from Finland have increased slightly by around 3%, but demand from the Middle East, Japan and North Africa is expected to strengthen in 2014 and will impact the specifications the UK is currently buying as some of the sizes are the same. Chinese buyers are also very active in the processed goods market, and imports to China are rapidly growing in three-digit percentages.

Log sourcing problems

As stock at the Finnish mills is considered to be on the low side, it is likely that shortages will creep into the market during the first quarter, but this is unlikely to develop into a serious issue because sourcing logs is not as great a problem in Finland as it is in the Scandinavian producing countries. Sweden produced around 4% less redwood in the 10 months to October, remaining consistently behind the Finns. Up to the fourth quarter, exports of Swedish redwood to the UK fell by just under 3.5% year-on-year to 450,000m³. Overall, Britain is still the largest market for Swedish softwood, standing at more than 1.7 million m³ in the first nine months.

Russian redwood mills are favouring exports to higher-paying markets, especially in the Middle East and North Africa, and this has diverted some supplies from traditional buyers in the UK and Continental Europe. However, Russian softwood exports to Japan lost ground to other European producers, notably Austrian whitewood mills, which increased export levels by more than 70% during September.

As the trade moves towards 2014, there is no reason to believe that sawmill production will increase enough to produce any surplus volumes and undermine prices in any way. If demand in the UK or any other significant market were to rise steeply, then demand would outstrip supply. The all-important factor will be to secure supply in advance, and to have the specifications that customers want ready for delivery when they need it.