Summary
• Business remains short term, with few back to back orders.
• American white oak and ash are in demand, although there are concerns over emerald ash borer infestation in the US.
• Production cut backs worldwide are now pushing up prices and causing shortages in some species.
• US hardwood prices rose 20-25% in the last quarter, and African by 10-15%.
•More customers are specifying certified hardwood.
One hardwood importer-distributor reminisced about the days “when customers kept a big lump of oak and a big lump of sapele in the corner of the warehouse, just in case”. It was only a couple of years back, but seems a distant memory.
“That kind of speculative buying has virtually disappeared in the recession,” he said. “It’s now 24/48 hour orders and short contracts. People buy when they need to and, at the moment, there’s little sign of that changing.”
Another importer agreed: “It’s still hand-to-mouth. There’s not much back-to-back ordering.”
But despite this continuing short-termism and having to act “more than ever as the customer’s stock-holder”, hardwood traders generally say the market is starting to look up and that the last three months have provided some cause for cautious optimism. Even the agent who was “seriously sceptical about talk of green shoots” said that “at least things aren’t getting worse”.
“We’re not getting too excited, because it’s relative to how bad things were in 2009,” said another agent. “But, while we’re not forging ahead, day to day we’re doing OK.”
“The election is causing some people to pause,” said an importer. “But there seems to be more underlying confidence. We had a pleasing pick-up in March, with volumes ahead of the same time last year, and our end of year results now look quite acceptable.”
An importer/distributor attributed the improvement in March partly to a “catch-up after the appalling winter”, but also detected more market optimism, adding that his company’s policy of maintaining stock levels through the slump was now paying dividends.
“Some competitors destocked more than us and don’t have our ability now to react to just-in-time demand,” he said.
RMI market
Traders reported some recovery in hardwood sales into joinery and shopfitting, but most cited repair, maintenance and improvement (RMI) as showing most consistent progress.
“RMI has a tendency to hold up better in recession than new build and emerges earlier and faster,” said an industry organisation spokesperson.
Another distributor was experiencing “reasonable” demand from the public sector, with “organisations getting to the end of budget periods with money left over turning it into product so it doesn’t get clawed back.”
The consensus is that it will be some time before the tentative improvement in housebuilding translates into a significant boost for hardwood sales, but it’s welcomed nonetheless.
“Hardwood is now principally a second fix and finishing material, so it will be the softwood boys who enjoy the initial benefit,” said an agent/distributor. “But it’s still part of a more positive picture.”
In terms of species’ market share, American white oak’s UK dominance remains unchallenged. “European is also strong, but the price differential means it can’t compete across the board and American continues to dominate the interiors market,” said an importer/distributor. “If prices moved onto more of a par, volumes would increase tremendously.”
American ash
American ash is also reported to be performing well, although traders are keeping a weather eye on the emerald ash borer infestation in the US.
“We haven’t had any infection test cases yet on ash imports, but if we do or someone breaches phytosanitary regulations, we could see people running away from the species,” said an importer.
Among other temperates, cherry is still reported to be “off the UK radar” and hard white and brown maple “in and out”. Sales of American red oak also remain thin on the ground.
“We’ve got some niche customers, notably coffin makers, but I could count last year’s orders on one hand,” said a distributor.
Walnut, however, is said to be holding its own, benefiting from a trend to darker species in cabinets, while colour-no-defect beech and yellow poplar/tulipwood continue their progress as paint grade substitutes for tropical species.
Among tropical timbers, sapele still holds onto the number one slot but, according to one agent, short supply, particularly in 63mm for a period, has boosted sales of alternatives. “We’ve seen customers turning to sipo and bossé, for instance,” he said.
Framire and iroko were also reported to be “holding steady” and several traders reported respectable hardwood decking sales, led by ipe and bangkirai products. Meranti, however, continues to lose out to temperate paint grades.
Supply-driven price rise
Talking hardwood prices four months ago, one importer accused some competitors of “virtually giving wood away”. Others did, however, say that, following the price slump earlier in the year, the market was firming and they were hoping for this to persist. One agent said a further 10-15% rise across the board would be welcome. That wish now seems to have come true, but the concern is that increases are supply driven rather than anything to do with embryonic recovery in demand.
“A large part of the supply base went into hibernation during the downturn and in many cases production has gone for good,” said an agent/distributor. “The impact was more immediate from America as their lead times are one to four months, against 6-12 for Africa, but we’ll see it here too increasingly in the second and third quarter.”
Production cuts
Some sources, he added, report that up to 50% of North American hardwood production has been temporarily or permanently taken out of the equation.
“We deal with US concentration yards buying green and they’re running out of mills to supply them,” he said.
According to an importer/distributor, four quarter oak has been under particular supply and price pressure. “Back in November/December it was US$1,500/mbf CIF UK port, now it’s US$2,000,” he said. “And ¾in and 2in oak, walnut and ash are heading the same way.”
Adding to the upward momentum has been sterling’s weakness against the dollar and euro, albeit that it’s now recovered some ground, plus rising freight rates.
“Again there’s a delay on freight rate increases feeding through from Africa because of lead times, but from the US they’re up month on month – in fact, some people are delaying orders until the next month’s rate is announced,” said the agent/ distributor. “So far we’re probably looking at an overall increase of 20% or more.”
Traders also highlighted the fees they have to pay for plant health inspection on American ash as another contributor to hardwood inflation. “And the Forestry Commission now wants these to rise from £23 to £38 per container,” said an importer. “We’ll just have to pass that on.”
Price increases
According to a cross-section of traders, these factors combined have pushed up North American prices by an average 20-25% over the last quarter, and African by 10-15%, taking kiln-dried sapele to around €660/m³ delivered UK.
“And the supply pressure is still growing as prices haven’t yet reached the levels to tempt mills to take production out of mothballs,” said an importer. “And when that does happen, it will also take a while to have a discernible impact.”
With some traders still selling old stock some way below replacement levels, one trader said the price increases were “making life interesting”. “They’re also coming at a time when credit insurance is still tight,” he said. “So customers are hitting credit ceilings even quicker.”
An importer said if increases became much sharper and continued to be purely supply driven, the prospects for hardwood market recovery could be affected, but the consensus seems to be that it hasn’t yet reached that point. Although, according to another trader, what it may be doing is providing a further deterrent to customers buying for stock “due to their continuing priority for cash flow”.
Inventories
To what extent the latter practice will eventually return is a matter of debate. One importer was confident that when the market was strong enough his customers would revert to keeping “buffer supplies of key species”. However, an agent speculated that for many, especially smaller companies today’s just-in-time approach may be the new norm.
“Even when the economy improves significantly, some customers may be so used to basing their budgets on this model, they’ll stick with it,” he said. “That means we’ll have to readdress our approach, see what we can do better, or do without, and focus on core strengths. I think we’ve already seen that with DLH recently announcing the sale of its mills to concentrate on its original role as a pure hardwood trader.
“We’ve already asked the questions like ‘do we really need to stock that species we only sell every two years?’ The old view was that to provide the service, we had to have everything for everybody all the time. Perhaps that’s something we have to rethink.”
