When people say the only way is up, the implication is generally positive; that things can only get better, or at least no worse. But not in the case of one hardwood importer. They meant they saw no reason why the unprecedented price inflation seen in the market over the last nine months should end any time soon, a view shared across the trade.
“The market environment that developed through the pandemic and pushed prices up worldwide is still with us,” they said. “It’s a unique conjunction of booming international demand, plus record transport costs, with restricted global production due to harvesters and mills running short of staff because of Covid-19 infection and implementation of pandemic-safe work practices.”
The better news is that there has been little push back on prices from customers.
“From joiners, decking and cladding producers, to builders and garden office-manufacturers, they all report healthy order books. They need the wood, they’re generally not quibbling on price and they’re paying on time,” an importer/distributor said. “Some are given pause by the latest rise and shop around. But they generally come back and pay the price, after finding they can’t get the wood cheaper, if at all, elsewhere.”
What has developed into even more of an issue since the last TTJ hardwood report (TTJ March/April), is availability. One market contact described it as a “crisis across the board”, which was driving prices still higher.
“When Covid struck, we were looking at a full warehouse, next to no orders and very tight cashflow,” said an importer. “Now the warehouse is half empty, we’ve got plenty of money thanks to high prices, but can’t get the wood.”
Consequently timber is increasingly on allocation.
“We’re primarily looking after loyal customers,” said an importer. “And we’re even having to ration timber to them to the extent they’re having to rein back. When a busy customer has to go from two to one shift due to timber supply, it’s pretty sobering.”
The consensus is that hardwood demand, after starting to turn around post the first “great lockdown” in April/May/June last year, has been rising ever since.
“A significant factor has, of course, been the boom in RMI and DIY, with consumers refurbing and creating home offices, using the money they would otherwise have spent on going out and holidays,” said an importer/ distributor. “The Construction Products Association stated that we Brits spend £65bn on holidays annually, so there’s plenty of surplus cash about.”
Demand is also growing from general joinery and construction. “Joinery customers say sales to hospitality, as well as private consumers, are now also on the up as pandemic restrictions relax,” said an importer. “It seems only shopfitting and exhibition sectors remain depressed.”
On hardwood supply, the greatest challenges are still reported in American.
According to Judd Johnson, editor of the US Hardwood Market Report, who was interviewed in the last TTJ (TTJ May/ June) and addressed a recent TTF National Hardwood Division webinar, part of the problem in US mills’ capacity to meet rising domestic and international demand as economies picked up after the first Covid-19 lockdowns, was that the industry entered the pandemic in a diminished state.
“As a prelude to how Covid affected business, you have to take account of the financial damage to the sector caused by the US/China trade war and China’s weaker economy in 2018/2019,” said Mr Johnson. “We estimate that US hardwood production decreased 8.2% from mid-2018 through year end 2019.”
Loss of sales of China-centric grade lumber, he added, and a subsequent shift to industrial grade production in this period meant US mills lost up to 40-45% of revenue.
While they continued to operate as a reserved industry during the pandemic, capacity was further curtailed by safe work protocols and shortage of personnel.
“US mills report the latter was partly down to the disease itself, but also the government’s Paycheck Protection Plan, which meant some workers were better off staying home and which is not due to end until September,” said an importer/distributor.
Supply problems were heightened by an exceptionally wet, cold winter, which hampered logging, and by hardwood mills switching to softwood to capitalise on demand from the booming US housing sector.
The result of these various factors is that prices “have just continued to head skyward”, as one company put it.
Four quarter white oak is reported 80-100% and eight quarter 50-60% up in price since the pandemic began. Importers also described key grades as “vanishingly scarce” and forward order availability “non-existent”.
“May has been our hardest month to date for securing forward contracts due to lack of offers/availability at any price,” said an importer/distributor. “And we anticipate no improvement or price softening until New Year earliest.”
White oak inflation is reported to have led to some switching to US red oak in the UK, but more so in the rest of Europe.
Tulipwood is also increasingly hard to find in volumes and grades required. “The price has doubled over the year, putting it on a level with pre-Covid four-quarter white oak,” said an importer.
As for other species, maple is reported up 30% over the year and ash 40-50%. Walnut has increased 65-70%.
“The price variation [within species] can be 15-20%,” said an importer. “It’s down to the rate of inflation and short supply; one supplier might be offering wood felled six months ago, another new material, a third might be doing a bit of profiteering.”
European oak prices were more stable last year, but this year are reported to have increased monthly, rising a total of 30%.
“It’s partly due to some switching from US white oak, but also rising demand in the rest of Europe and worldwide, including China, plus some opportunism,” said an importer.
Another factor behind the price hike has been a policy change in log sales from Croatian state forests. Previously domestic processors were allocated material. Now more is being put up at open auction, inflating prices.
Another importer said, while they hadn’t experienced shortages to date, they expected gaps in European oak supply from July/ August.
European beech is reported up 5-10% this year, although this is mainly attributed to increased freight costs post Brexit. Lumber lead times are extended, but log availability remains reasonable.
The pandemic has taken longer to impact African supply, but this year has increasingly restricted producers’ capacity. The situation has been exacerbated by shortages of containers due to trade disruption in the health crisis. The consequence is that the basket of key species is estimated up 20% in price over the last nine months, while lead times have extended.
“We buy African shipping dry and, in hindsight, were too cautious in buying last May to August,” said one importer/distributor. “In January I would have placed some large orders, if I could, but it wasn’t available so we haven’t really got enough in the system. We feel though that the supply situation should ease in coming months.”
One supply issue expected to be ongoing, however, is in sapele, and to a lesser extent utile and iroko, with lower volumes generally coming out of the forest.
“Whether this is a phenomenon due to distribution in areas currently being harvested, over exploitation, or other factors is unclear, but it’s reported widely. Some sawmills say they’re processing 25% of the sapele volumes of 10 years ago,” said an importer. “Whether this will prompt the uptake of alternative species in the UK we’re seeing elsewhere in Europe, such as kosipo for sapele, or tali for iroko, and other species such as bosse and kanda, remains to be seen, but we are seeing some interest.”
The critical issue in South-east Asian has been freight costs, with container rates jumping from US$2000-2,500 mid last year to a peak of up to US$15,000 and now reported around US$10,000. This is reflected in both prices and availability, with some importers temporarily pulling back from the trade.
There’s reported to be very little meranti on the ground, while prices are said to be up 25% to 40% on a year ago, with keruing and bangkirai rising around the same.
A sign of the times is that the first breakbulk vessel carrying timber out of Port Klang Malaysia to the UK for decades, the 63,200 tonne dwt Konya, is currently destuffing at Tilbury.
“Breakbulk rates have increased, but it’s still cheaper than containers and another vessel is scheduled out of Asia in a couple of months,” said an importer.
Importers are expecting little change from today’s challenging environment.
“There’s talk of the heat coming off global demand as government economic stimulus measures wind down. But there are also predictions the UK will be among Europe’s fastest growing economies in 2022, while Judd Johnson told the NHD that the biggest demographic cohort in America is now at home-buying age, meaning US construction will remain red hot,” said an importer. “The general view is that current conditions will persist. That means restricted supply, a bun fight for what there is and prices continuing to rise.”
