Despite a slow start to 2024, UK softwood demand improved as January progressed and merchants started to fill gaps in specifications. Most requirements were for immediate delivery of structural carcassing and needed to be serviced from landed stock, which helped the quayside stockists increase sales and turn inventories into cash. It also reduced quay rental charges for those carrying residual excess volumes from last year.
As the month moved on, larger volume buyers circulated enquires for February/March shipments, with some also looking towards April. This resurgence of interest in forward markets brought to the surface the underlying problem of log shortages reported in TTJ’s latest digital Softwood Update (January 23) across northern Europe.
Despite clear messages circulating within the industry of growing shortages in the pipeline, many buyers were taken by surprise that specifications lacked several dimensions, and some mills were only offering part volumes. During Q4 of last year, merchants had grown accustomed to getting what they needed off the ground at prices they could virtually dictate, a situation fuelled by distributors trying to force volumes into the market while demand was weak. While this situation still existed in early 2024, it looks set to change further down the line.
Prices in Europe increased between €10-15/m3 in December and January, and Scandinavian sawmills as of mid-January reported that the availability of raw material is getting tighter. This is affecting both the redwood quality grades and kiln-dried sawn whitewood boards used for conversion to battens. Shortages are also affecting some of the German mills, which have been unable to offer against new enquiries or have only offered part volumes for Q1 shipment.
Nordic shippers report some firming trends in the Middle East and North African (MENA) markets, including Morocco and most recently Japan, which has finally recovered from a period of over-stocking in 2023. Cargo levels at the Egyptian port of Alexandria, which is normally rammed full of softwood, had fallen in the run-up to December 2023 and were turning over more frequently in January, rather than amassing into a glut.
In the Baltic states, softwood producers have been trying to cope with high raw material costs and low selling prices. This situation, coupled with a paucity of demand, has made it difficult to schedule cutting programmes, leading several producers to reduce C16/C24 carcassing production and focus on other products. Alternative items have ranged from garden buildings to firewood and briquettes. For Baltic shippers to re-enter the structural softwood market full time, UK prices need to become more reflective of the replacement cost, otherwise it is more cost-effective for them to keep producing alternative products.
In softwood cladding and joinery markets, the demise of Russian Siberian larch has boosted demand for alternatives, with western red cedar (WRC) taking its place as the most popular. WRC has endured for many years as a favourite cladding product, but due to cost has been substituted in many cases with other species or treated wood. Container prices from Canada have come down steadily since the peak periods of January 2022, with the global container freight index showing a drop of over 55%, making WRC more affordable.
For use as joinery components, laminated and finger-jointed products are gaining ground due to their stability and accuracy, which makes them particularly popular for staircase manufacture. The traditional days of joinery shops sawing their requirements from larger dimensions such as 75×200/225mm redwood are fading, as these more advanced products are easier to use and yield less waste.
Taking an overview of the softwood market across all products, updated statistics shown in Figure 1 illustrate the longer-term pattern of UK softwood imports and consumption. The combined supply column (or apparent softwood consumption) shows the homegrown and imported supply total for each year. The most recent completed data, shows consumption in 2022 was at 8,662,000m3, made up from 66% imports with the balance supplied in home-grown.
The combined consumption figure does not necessarily reflect physical usage in the economy, but it is derived from supply statistics calculated at the end of each year. Viewed over the longer-term period, the mean average smooths out the peaks and troughs, and gives a realistic alignment with actual demand.
The table in Figure 1 shows the last 10 years of completed data, and it can be seen that apparent consumption made a major leap upwards in 2014, increasing 996,000m3 over the starting point of 2013. From that point on, there were significant swings in both directions finally ending in 2022 only 171,000m3 ahead from the beginning.
During the 10-month period shown in Figure 1, it is well-known that after the Brexit vote in 2016, misinformation regarding import regulations caused a surge in buying for shipment by April of the following year. This culminated in a level of overstocking during 2017 and imports rose by nearly 700,000m3. This increase in imports was corrected to suit demand over the following two years so that by 2019 imports were back down by over 600,000m3.
It is always the case in the softwood industry that when imports reach a higher peak than normal, prices crash as excess stocks are sold cheaply and turned into cash. Then there is a period of correction when buyers retract from the market and find themselves writing down the value of their inventories.
The most significant increase in UK supply started in 2020 when the Covid pandemic struck. Since that time, the softwood industry has not fully recovered its footing. With large swathes of the working population paid to stay at home, a sudden insatiable demand for timber and building material emerged as thousands of home maintenance and building projects started up in April.
The supply chain was unprepared for this uplift in demand, as the industry expected the pandemic would kill business off and cancelled supply contracts. In the event, the reverse happened, with importers ending up taking almost any specification offered.
Supply gradually rose during the year, but volumes were being pushed back and running very late. Goods were arriving behind the demand curve, but the momentum behind imports gained more traction in 2021 rising to 7,623,000m3. When combined with homegrown supply, the volume reached a high of 10,960,000m3, almost 1.2 million m3 more than 2020, and more than 1.3 million m3 above the 10-year average.
The critical factor that came into play was actual demand, and that began falling back from August 2021. There were importers with substantial volumes at top-level prices still to arrive. For example, just in sleeper sizes alone, some UK sellers were left carrying over two years’ worth of stock. C24 levels at the ports both in the UK and export quaysides were rammed, and many merchants’ yards were too full to accept any call-offs.
By revisiting these timelines and figures, it helps to ascertain the lasting effect high levels of overstocking can have and shed light on the ongoing trends. The corrective measures the trade was forced to make during 2022 was dramatic and volumes dropped by virtually 2.3 million m3 (26.5%).
The data contained in Figure 2, is purely an estimate for 2023 and 2024. The actual figures will not be produced until the end of this year and next year respectively. However, softwood imports are tracked monthly and by early March a preliminary figure for 2023 should be available.
Both estimates still show a continuing period of market correction which is still in play, and the part data for 2023 imports suggests the forecast is likely to be close to the outcome. If supply shortages become endemic this year, they are most likely to disrupt specifications, leaving gaps that are difficult for importers and merchants to fill. But overall, reduced volumes could very well fall in line with UK buying trends and bring supply and demand into balance.
End user demand will be difficult to predict in 2024. Interest rates have slowed activity in the new housing market, but there is a growing pressure to increase building. Some proposals are emerging that might favour young buyers where the government could back a scheme to reduce deposits down to 1% from the current average of 10%, and this could help stimulate the housing market at entry level.
The data suggests that the prospects for 2024 will be restrained, and buyers should concentrate on keeping stock levels tight and well-balanced. If prospects for softwood demand do improve in 2024, they are likely to be due to the balancing and refilling of low inventories in importers yards. But only a rise in end-user demand will sustain a market recovery in the longer-term, and the trade needs an uplift in demand from building, maintenance, construction and industrial consumers to make it happen.
