The main casualty of current conditions as mentioned in our June TTJ softwood update (ttjonline June 26), is the strength-graded sector, with C24 in particular under the spotlight.
A significant number of large distributors have been actively de-stocking the product and operating on a ‘just in time’ replacement basis, while others have completely removed it from their product range.
Apart from poor demand, the main reasons for exiting the market are the all too frequent cycles of crashing prices, which undermine inventory values. Even today, competition between some Swedish producers to try and maintain market share has continued to influence the UK market’s loss-making price structure.
In terms of carcassing, there was an initial shortage of 6m lengths when import restrictions were first imposed on Russia and Belarus where the majority of these lengths originated. At the time they commanded a steep premium, but because UK demand for structural wood has remained subdued, the shortages of 6m have not had such a great impact. The current supply appears to be sufficient, from both Baltic and German producers, to meet most importers’ needs depending on the specification required. Some buyers have supplemented original lengths with finger-jointed material.
The downturn in demand for structural wood has been noticed by some of the shipping lines who report cargo volumes are down and are being replaced by other products more in demand. Volumes of TR26 and CLS have also dropped as the number of new building phases put on hold has increased with the tightening of the economy and the rise in interest rates.
Since the prohibition of imports of Russian and Belarussian wood, the most noticeable gap in the market has emerged as rounded and cundy-peeled posts. Their production relied heavily on eastern bloc sources for raw material, and now the processors centred in the Baltic states are searching for supply in western Ukraine, Poland, Romania and anywhere else they can find suitable fibre.
Demand from the agricultural sector for these posts remains strong and it is quite a common sight on the quayside to see thousands of cubic metres replacing the stacks of carcassing that were commonplace in the past. There are questions from this sector regarding the durability of treated softwood posts and some end users are looking at alternatives. This is an issue the timber trade, combined with treatment manufacturers, in the process of addressing, and timber does have a price advantage over metal and concrete as well as stronger environmental credentials.
Turning to forestry matters, spruce bark beetle infestations have resulted in cutting restrictions in the Baltic region. The authorities have declared a moratorium until they are satisfied the infestations have passed, and processors were advised the restriction would be lifted by the end of June.
In addition to pest infestations affecting logging activities, the hot weather is posing fire risks due to the ultra-dry conditions in forests across the globe. Swedish contacts have reported operations being restricted and in some areas kept to the evening, when it is a cooler, to reduce the fire risk. Forest fires can have a devastating effect on the environment, health and the economy. In Canada there are record-breaking forest fires on such a scale that according to satellite monitoring, the smoke has actually reached parts of Europe. If this occurred in Scandinavia on the same scale then the reduction of raw material would dramatically alter the European softwood market dynamic.
According to sources in the pallet wood sector, exports from Latvia have fallen and UK prices are proving very tough. Nordic production of kilned and HT boards is fairly stable and demand for export packaging is holding up well.
Joinery quality productions are steady and prices are much less volatile than in the past. Some importers have reported increased demand for redwood unsorted and fifth grades for mouldings, planed goods and general joinery contracts. A strong driver for this market is the refurbishment market, where homeowners are trying to add extra value to their existing or newly purchased properties.
As the trade is now halfway through the year, it is interesting to reflect on some of the statistics that shaped today’s market, and compare estimates to the actual progress of softwood as far as collected data will allow.
It is accepted that the most significant change to the softwood market began with a surging demand during the lockdown in 2020. Then in the following year, 2021, imports breached 7.5 million m3 as traders and producers sought to catch up with outstanding volumes and feed the market. Some companies used the 2020 sales impetus as a model for their 2021 budgets and bought more softwood products than they would usually commit to on the forward market, anticipating a continuing upward trend. This full-on buying stretched the supply chain and inevitably forced up prices, not just in the UK, but also across Europe and the US.
Early signs of a cooling in the market started to show around Q3 2021, just as the market became saturated with imports and the inevitable deluge of late shipments caused by mills catching up. At the same time the US market started to fall back sharply, which made the UK look an attractive place to dump some excess European production previously earmarked for American buyers. Offers from Germany and Sweden were being received in the UK below the market level which was current at the time and at a peak.
By the time Q3 arrived, the exporters’ quaysides were full of unshipped softwood, and the ports in the UK were crammed with landed cargo. As end-user demand had started to weaken, logistics started to become difficult. Deliveries to the ultimate receivers’ yards were being postponed through lack of physical space, which in turn led to volumes backing up in the supply chain and bottlenecks at the ports. A panic started to set in as the trade could see the physical evidence that softwood supply was well in excess of demand.
Against that background, it is now possible to see the level of volume imported and to equate what actually occurred from the data accumulated.
Each year the United Nations Economic Committee for Europe (UNECE), Committee on Forests and the Forest Industry (COFFI) meets in Q4 with estimates of exports, imports and apparent consumption. The estimates are provided by the member countries, and at November 2022 UK softwood imports for this year were predicted to be 6,250,000m3. For 2022 the estimate was 6,150,000m3, but the actual figure came in below that figure by 473,000m3 taking softwood imports below 5,700,000m3.
In Q1 2023 the actual softwood volume shipped was just below 1,500,000m3, around 5,000m3 less than the same period in 2022. Last year’s trend revealed that the largest monthly imports landed during April and May at approximately 610,000m3 and 650,000m3 respectively. Then the volumes tailed off through the year, finishing in December at around 360,000m3. If the same pattern emerges this year then imports should finally counteract the effects of the 2021 oversupply and keep in balance with this year’s demand, which is expected to be fairly flat. As it took most of last year to bring supply at least under control, importers are still taking an ultra-cautious approach to buying and a continuing market correction is still in force.
Products that took off sharply during the lockdown period were heavily allied to the garden landscaping range, and within that group treated sleeper sizes were said to be over-bought to the point at which some distributors found themselves left with between one to two years’ stock.
Looking at the data in Table 1, it can be seen just how hard the UK importers pushed back on purchases during 2022 to correct and compensate for the 1.35 million m3 of extra imports above the preceding eightyear average. The figures do not reveal the actual demand, but it is fair to assume that there was also a genuine increase in end-user consumption in 2020 and 2021, although it could not have been on the same scale as the imported volume, otherwise stock levels would have noticeably dropped by the start of 2022.
To summarise today’s market, demand is patchy but some product ranges are faring better than others. As mentioned in our online softwood e-briefing in June, the shortage of larch has opened up opportunities for western red cedar and modified wood products as replacements. Redwood joinery and packaging wood is experiencing consistent demand, but structural grades and C24 in particular are suffering a sharp downturn.
In the background, the supply chain is thinning in places as some mills have cut back on production to suit the economic climate, while others have been affected by increasing log costs and availability.
