Although much has been said about the effects of a strong dollar on the Baltic producers, the current exchange rate of about US$1.45/£1 continues to make life difficult for shippers selling into a sterling market.
The prolonged mild and wet winter months made log extraction difficult through December and January, and it is only now that the ground has frozen hard enough to allow machinery and transport access to forests.
These two factors have had the effect of squeezing the sawmills between increasing log prices on the one hand, and lower sales revenues on the other.
Shortages in log supply has affected mills in Estonia and caused changes in the nature of production. The Imavere sawmill increased its turnover last year by 35% on 1999, but production was held back by log shortages at the end of the year. Toftan has virtually ceased exports to the UK as the log supply is now concentrated on redwood, the type of grade produced being more suited to markets in the Middle East.
So far this year, demand for Baltic softwood has been lower than the shippers anticipated, and in Latvia production has been cut in a number of mills to match supply with demand, and retain some financial viability.
However, some of the larger producers have continued with their cutting programmes, and with the volumes produced, some cheap offers for kiln dried and graded carcassing have been circulating at levels designed to compete with the Swedes, which many in the industry consider suicidal.
There is a resistance by Latvian shippers to follow Swedish prices downwards, and they are trying to maintain higher levels by offering tailor-made specifications in line with the buyers’ exact requirements. In some cases this is working, but the situation is exacerbated by the Swedish producers’ willingness to offer cheap priced contracts on the forward market through until April.
Demand in Continental Europe is reported as variable. Dutch and German agents speak of a weak market; in France and Belgium there is improvement.
Those Baltic exporters who have been targeting new markets for whitewood in countries like Japan and the US are finding sales much harder to achieve in the current climate, and price levels have been falling.
Britain remains the major market for Baltic softwood, but trade is patchy. Shipping lines report that cargoes are sharply down on this time last year and they are having to make a number of ports of call in order to fill vessel space.
Timber is not the only commodity suffering a downturn in volume. The Port Authority in Lithuania pointed recently to a 13.5% drop in general freight through Klaipeda during January this year against January 2000, in contrast to a rise last year when volumes increased by almost 30% over 1999 to 19.4 million tons.
Softwood surplus
In a general overview of the softwood market, one Latvian sawmiller said that recent figures showed a surplus of four million m³twood circulating in northern Europe last year.
Although a percentage of wind-blown material was within that figure, most of the timber was freshly felled. This confirmed importers’ fears that supply would exceed demand if mills did not curb production.
Lower softwood prices have begun to lead some importers and merchants to reduce their UK market prices, a move not driven by the end users but by fierce competition for turnover.
There are still reports of ‘cheating’ by traders stamping wet timber with a dry grade stamp to try and make better profit margins, highlighting the need for TRADA‘s move to step up policing of licensed graders and ensure regulations are adhered to.
To illustrate the scope of the problem, one agent confirmed that, of several thousand cubic metres of Baltic sawn softwood sold this month, only around 30% was kiln dried; most contracts related to unseasoned goods. Conversely, another agent reported that contracts for kiln dried material were growing, accounting for over 70% of volume sold. Clearly there is a large demand for unseasoned goods within the UK for end uses such as packaging and external structures, but volumes are also going into internal structural beams.
An examination of a com-pany’s contract files would reveal the true nature and extent of raw material purchased, showing whether or not stocks held for joist specifications were drawn from properly seasoned timber.
This issue, long in contention, has had the effect of artificially lowering the market price of building timber. As one importer commented: ‘All the bona fide traders would like to see a level playing field established.’
Trade in treated timber garden and landscaping products has also been affected by poor weather, but the Baltic mills are optimistic that demand will pick up in the spring and prices will firm as a result.
