As the trade entered Q3, competition in the softwood market intensified. With demand for structural grades falling short of expectation, the inevitable round of price cutting began. Importers with inventory-linked landed stocks scrambled to reduce volumes to avoid port rental costs, as well as stock depreciation in a falling market.

As prices regressed, timber merchants moved to shorter-term buying patterns and reduced volume commitments, leading to a weakening of the forward market. This situation was not just limited to the UK, as other European markets also witnessed a downturn in demand, including the Swedish domestic market.

The US market also proved to be difficult, with July lumber prices hitting the lowest level seen for the last 14 months. This was largely due to housing starts sinking to some of the lowest levels seen since July 2020 as a tight financial backdrop made credit difficult to obtain for home loans. This situation affected demand, contributing to a decline in lumber futures prices, with July levels hitting around US$450/M (per thousand foot board measure), a severe drop compared to the last high levels seen in January 2022 when levels were trading around US$1,350/M. Since that time, the market has flattened out at a rough average of around US$530/M.

In mid-July, southern yellow pine mills became very aggressive on price, with actual selling levels down to US$300/M. This soured the market for European whitewood mills, which had been making inroads into the US market, where end users favour the qualities of north European spruce for construction.

UK trade bodies have been preparing for a push on post-election lobbying to highlight the benefits of building with wood

Although structural timber prices have been under pressure, forces in the background dictate that a tipping point must be reached. Log costs in Scandinavia are on the rise, and the shortages of fibre seen in Q1 are only being masked by the current poor demand. In the Baltic region, the high price of sawlogs, combined with low selling prices, forced many mills to withdraw from the C24 market to await a recovery. The mills and Latvian forest sector did achieve some renegotiation to ease the situation as the rising fibre costs were impossible for producers to work with.

For joinery and appearance-graded products, the market has maintained a steady position since the year began, with supply and demand more or less in balance. Shortages of the wider sideboards in both fifth grade and unsorted have increased, which some producers attribute to smaller log dimensions being harvested, particularly in the middle-gulf regions of Sweden. The traditional standard widths of 175mm, 200mm and 225mm have become harder to obtain and in most cases demand a sales premium. On that basis, demand for edgeglued boards is reported to be growing to compensate, as this product also offers the advantage of stability by avoiding the cupping effects of differential shrinkage.

In the lower grades, the demand for pallet and packing wood has been firm, a positive indication that trade in the visible part of the UK economy has been busy. Basic sixths and heat-treated pallet boards have been trading at higher price levels than C16/24, which has been a good reason for the mills to focus production on pallet wood and packaging specifications. The same price anomaly is also true of basic sawn treated landscaping and fencing specifications, where returns are better than graded carcassing both for imported and home-grown specifications.

In the structural timber market, there is little doubt that the growth in engineered wood, mainly in I-beam and laminated timber products, has impacted the demand for solid timber joists. Used mainly by developers and designed as systems in new build sites, it is uncertain how far these products will take market share away from solid wood as there are no authoritative figures available that quantify combined imports and UK production. As a result, timber producers and importers will find it increasingly difficult to estimate future UK consumption volumes of structural softwood.

Fully manufactured imported LVL and I-beams amount to a combined volume of 100,000m3 per year, which is not that significant when compared to annual softwood imports of 5.5-6 million m3. That import figure includes all softwood, not just structural wood, so there is even less accuracy in separating the actual consumption of carcassing volumes. There is a strong I-beam manufacturing industry in the UK, and by combining the growth in that production and its imported counterparts it would be possible to get a more accurate indication of the ongoing demand for solid structural wood.

Within the imported softwood figures also lie roofing battens, produced to comply with BS5534 A1:210, a product that has drawn a great deal of scrutiny. Historically speaking, roofing battens were normally supplied from quality-assessed boards such as sawfalling excluding sixth, but now battens require piece-by-piece examination, with each length stamped to comply with the standard. The criteria used for assessment is modelled on an adaptation of BS4978 methodology taking into account defects such as knot ratios, slope of grain, moisture content and, critically, the minimum dimensions. Treatment is usually low-pressure clear chemical with added colourants to distinguish the battens from standard sawn productions, which are usually green high pressure treated and used for other applications.

It is a legal requirement that producers, importers and distributors ensure that the battens are full to size at the control level of 20% mc. It is also necessary for producers to provide third party certification, together with a declaration of performance for production procedures. The main problem experienced by importers is undersize on the thickness, which makes the battens non-compliant with the grading rules, and therefore non-compliant with building regulations.

Taking an overall view of the imported softwood sector, contributors to the UNECE COFFI at the last meeting in November 2023 estimated that UK softwood imports would reach around 5.5 million m3 this year. Trends available so far show that imports are likely to be below last year’s total of 5,722,000m3.

The 2023 figure actually exceeded the COFFI projections of 5,385,000m3 by 337,000m3, which shows that the industry came through with a stronger result than anticipated, but it also illustrates how difficult it is to forecast the volume of imports, let alone any specific product categories such as C24 or TR26.

In terms of supply, Sweden continues to lead the trend as the largest supplier to the UK this year with a share of more than 50% in January-April, while Latvia as the second largest had a market share of around 17% over the same period (figures TDUK).

For the whole of 2023, Sweden shipped around 2.918 million m3 and Latvia 801,000m3, for a combined total of 3.719 million m3 (65%) of UK imports. The UK’s share of global Swedish softwood exports totalled approximately 21% and made up 29% of Latvian exports. Finland was the third largest supplier with a 14% share at 801,000m3, representing just over 10% of total Finnish softwood exports.

CURRENCY EXCHANGE RATES

The outlook for the remainder of 2024 remains uncertain. With the change of UK Government, the trade will be closely monitoring interest rates and the possibility of more accessible mortgages, while importers will be watching the extra effect of any volatility in currency exchange rates.

In Q4 last year, sterling was trading at a low point of €1.144/£1 and after a jagged trajectory reached a high in June 2024 of €1.189, settling at just over €1.18 in early July. This 4% fluctuation was significant in terms of the imported price of Baltic carcassing, and the mills’ abilities to compete against countries selling in other currencies. Over the same time frame, the Swedish kronor rose from SEK12.699/£1 to a peak of SEK13.7634 and was recorded at SEK13.38 in early July, a fluctuation of more than 8%.

Sterling has strengthened at a stronger rate against the Swedish currency, enabling Swedish exporters to gain a more competitive edge when selling into the UK. By adding the currency advantage to an actual cut in the Swedish price, it can be seen how difficult it is for the Baltic mills to sell against the Scandinavian competitors.

The future of softwood is tied to its wellestablished environmental credentials in construction, and the trade bodies of the UK have been preparing for a push on postelection lobbying to highlight wood as the answer to achieving low carbon emissions.

In a manifesto circulated by the Confederation of Timber Industries, which includes Timber Development UK, the Structural Timber Association, the Wood Protection Association and the Trussed Rafter Association, the benefits of using wood are laid out in a widely researched publication, which is designed to highlight the benefits of building with wood as the best way to achieve strong, energy efficient low carbon structures. A TDUK publication alert was distributed to members on July 3 with guidance on how to promote the industry to government, councils, planners and designers.

This comes at a crucial time, when political parties agree that a modern and efficient housing programme is needed to keep pace with demand. This is an unprecedented opportunity for the industry to galvanise itself into promoting timber and wood-based products as the key to providing the lowcarbon, energy-saving homes that the UK so desperately needs.