This time last year the British timber sector was discussing Brexit and ways to capitalise on the dip in sterling’s strength, which shone a favourable light on home-grown over imported timber. This year, while Brexit and currency are still topics of conversation, the issue of raw material availability and new planting – or lack of it – has risen on the agenda.
Overall, log supply and demand are in balance, although there has been a surplus of small roundwood. This is said to be partly because of Kronospan’s production issues, which have reduced its consumption of home-grown small roundwood, and also a weakening in certain parts of the energy market.
“There has been strong demand from the sawmills for the higher quality logs but the small roundwood hasn’t had the same level of demand and that has created an unusual situation,” said Confor chief executive Stuart Goodall. “At the moment it’s a very specialised market.”
While this may be a short- to mediumterm challenge for sawmillers, they all have their eyes on log availability in the longer term – particularly those mills that have invested heavily in increased capacity.
The public estate now accounts for 40% of supply and private growers 60%.
“That percentage is only going to increase because the public sector across Britain has pretty much reached its peak production,” said Mr Goodall. “We do forecast an increase in wood availability over the next 10-15 years and that is all going to come from the private sector.”
However, as David Sulman, UK Forest Products Association executive director, pointed out, while some in the private sector will continue to bring wood to market because it is an integral part of their rural enterprise, others will shut the forest gate when they don’t like the log prices. Log prices are high, due to strong demand from the sawmills, so the gates are open for now.
There are significant variations in new planting and the consequent predictions of raw material availability throughout Britain.
The situation in England and Wales is variously described as “very poor” and “shambolic”, while in Scotland, although not perfect, it’s a more positive picture.
There is an expectation that the next planting season will see 9,000ha of new tree cover in Scotland but this is below the existing Scottish government target of 10,000ha per year (around 22 million trees). Earlier this year it announced plans to increase this to 15,000ha per year (around 33 million trees) by 2025.
“Fergus Ewing, the cabinet secretary for the rural economy and connectivity, has made it abundantly clear that these targets have to be met,” said Mr Sulman.
“He sees that forestry and forest products are a vital part of Scotland’s economy, especially the rural economy and he has applied pressure to Forestry Commission Scotland to do their bit.”
“If someone in the private sector harvests they look to replant within a year to 18 months but what we’re seeing in the public national forest is that restocking may not take place for five or six years after harvesting,” added Mr Goodall. “If you are leaving it fallow for six years on a 36-year rotation crop, then a sixth of your estate is treeless at any one time. This has a huge impact on the amount of wood and the availability.”
Planting
The better news in Scotland is that a higher percentage of productive planting – conifers – is now taking place.
“The system and grant scheme has been rebalanced so we are now seeing a 60% commercial conifer and 40% native broadleaf split,” said Mr Goodall. “So we’re improving the balance but we’re not seeing the necessary levels of replanting.”
The lack of replanting is being attributed to the “bureaucracy surrounding new planting schemes” and the “tortuous” approval process rather than to an absence of funding. If this situation is present in Scotland it is even worse in England and Wales.
Confor and the UKFPA continue to lobby Westminster and Defra minister Therese Coffey has indicated that she is keen to work with the sector to increase planting levels. There is huge frustration over the seeming lack of direction at Natural Resources Wales (NRW), however.
“There can be no doubt now that NRW is beginning to squander the legacy it was handed from the former Forestry Commission Wales,” said Mr Sulman. “Thank goodness for the private sector in Wales, which is continuing to bring wood to the market.”
“We have been disappointed that NRW has not spent enough time looking at the forest estate and planning and investing in it,” said Mr Goodall. “They still have large areas that were cleared in response to the phytophthora disease in larch that they haven’t restocked yet. It seems that they have been taking income from harvesting the trees and using it to subsidise other activities across its portfolio.
“We want them to start taking the forestry aspect of their activities more seriously, restock, reinvest in their asset and work with the sector to develop the forestry industry.” NRW’s processes have also come under scrutiny by the Welsh Assembly and a long-term contract to supply BSW’s Newbridge mill has been rescinded following complaints that the NRW didn’t follow correct procedures. As a result, BSW will not be following through with a further £16m investment plan it had in place to deal with the potential increase in volumes of logs – particularly larch felled for phytosanitary reasons.
“The exit from the contracts has been through mutual agreement and there is no animosity between NRW and ourselves,” said BSW chief executive Tony Hackney. “We’re not going to proceed with a new mill at Newbridge while we have limited security of supply. Instead we have redesigned the mill to use the available log diet.”
As mentioned, log availability is a mixed bag, with sawmillers’ experiences varying depending on their location. They share the view that log prices are too high.
Mr Hackney describes supply as “fairly well balanced” but adds the caveat that if more wood was available at realistic prices, BSW’s mills could produce more and sell more. “We’re at planned capacity but have more installed capacity,” he said.
“There is an underlying concern that the supply chain needs to work closely with the processing sector and downstream markets have no ability to pass on cost increases to the consumer, which will lead to very difficult times for the sector. After all, we are all in the same sector and need to take care of the balance to ensure a thriving and prosperous forestry and timber industry.” James Jones & Sons sources 95% of its roundwood in Scotland and made a similar point about log prices.
“Log prices started to rise sooner than anticipated and there was a lag in sawn timber prices rising, which inevitably meant a squeeze on margins in the first six months of the year,” said joint managing director Ian Pirie.
“There is no doubt that being able to invest in the equipment needed to improve efficiency and reduce the cost per cubic metre of production is a crucial factor these days.”
Scott Gordon, joint managing director at Gordon Timber in Nairn, agreed that increased demand throughout the processing sector had pushed log costs higher but said supply had been plentiful, though tightening of late. Meanwhile, in north-east England, A&J Scott’s managing director, Robert Scott, referred to log supply as “a constant threat in 2017”.
“Supply at the start of the year was very poor, especially from the private sector,” he said. “However, it has improved and we are fairly comfortably bought forward, although I do foresee the supply issue lasting into 2018.”
The majority of A&J Scott’s supply comes from the Kielder Forest, part of which is in the Northumberland National Park where lack of new planting is causing concern. “There continue to be major problems with the Northumberland National Park Authority and their opposition to productive woodland,” said Mr Sulman.
Further south, in Shropshire, Charles Ransford & Sons said its log supply was balanced and stocks were comfortable for the next six months.
“We source our logs throughout England and Wales,” said operations director Alistair Evans. “However, we can draw on supplies from our own sustainably managed forest holdings, which we are always seeking to increase and will do so should the right opportunity present itself.”
He too made the point that log prices were too high for comfort. “We’ve seen log costs rise by 12% at a time when sawn prices have been static. This is clearly a situation that is not sustainable in the long term.”
Brexit Effect
As mentioned, demand for British-grown and processed timber is good and market share over imported timber has held steady. This is attributed to several factors, including improvements in the quality of British timber, investment in increased capacity and better marketing but the sector has no illusions about the main factor underpinning demand – the weakness of sterling following last year’s vote to leave the EU.
“Brexit has had a positive effect so far, although not necessarily for the right reasons,” said Scott Gordon. “Pretty well overnight the exchange rate changed in our favour and increased the competitiveness of British timber.
“From our point of view it was an opportunity to get our products into the yards of people who have traditionally bought more, or all, imported, so it’s been good to let them see what we are able to produce.”
“Brexit has had a positive short-term effect on our trade,” agreed Robert Scott. “Seasonal demand has been underpinned by favourable exchange rates and importers are increasingly turning to us for a wider product range and greater volumes – and they are doing so more consistently.”
He added that, as A&J Scott is primarily a fencing mill, offering a cut-to-order service, its exposure to the effects of import competition tends to be fairly limited.
“However, if the imported price is on the slide it does hit us eventually as it undermines the position of the carcassing mills who, in turn, focus on our markets to maintain production output.”
That’s not happened yet, of course, and the main impact of Brexit has been the increase in price on imported timber as a result of the falling pound.
“Buyers are still largely buying on price and we have seen some previously C24- only merchants start to stock British-grown carcassing to give themselves a more competitively priced offering to the building trade,” said Mr Pirie, at James Jones.
He added, however, that growth in the overall timber market had led to an increase in volume and share for imported timber.
“British volumes have remained fairly constant, increasing slightly in the last year, but the percentage share of British softwood has slipped back a couple of points from a high in 2013 as UK mills are running close to capacity.”
Mills have found it harder than expected to bridge the gap between sawn prices for home-grown timber and imported timber.
The differential is reported to be an “almost record” £30-40/m3.
“Demand was impacted pretty positively and very quickly but we were surprised that it took more than six months for any benefit to come through on prices,” said Rod Gordon, joint managing director at Gordons. “You would naturally assume it is dead easy for the [home-grown] market to leap forward and for prices to develop on the back of that, enabling us to recover real cost increases in the log market,” said Tony Hackney. “But it hasn’t been so easy. The market is moving forward steadily but not at the pace that the log availability and log prices are at.”
“Prices for British timber have moved upwards slightly and are now at the level we think they should be,” said Mr Pirie.
“However, it has taken a little longer to get to this point, largely as a result of the weak selling of Irish timber through the first half of the year.”
Demand for sawn timber is steady, although in some quarters there is a perception of an underlying lack of confidence in the construction industry, which is seen as “strong but could do better”.
Tony Hackney, for example, said he would like to see more incentives for construction companies and the supply chain to build.
“There is a massive shortage of housing and construction is critical to the country’s well-being.”
That said, construction grade timber and timber products are selling well. As mentioned by James Jones, some British buyers are moving away from imported C24 and the company also reports that demand is high for its I-joists.
“Our JJI-joists are performing exceptionally well as a result of the uplift in housing starts and sales are at their highest ever levels,” said Mr Pirie.
Gordon Timber reported better demand for construction timber but said it had “a way to go” before it reached previous highs. Gordons now supplies more into the fencing market and said that sales have been very strong.
Fencing Demand
In spring this year Gordons launched a 15-year warranty on its round fence products and said this has had a real impact on demand.
“It’s been very well received and our turnover is up,” said Mr Gordon. “We are investing in that line and we are selling all we can make. We put a cross-cut in the line, so we are able to process double-length posts and we’ve automated the turning of the material before it gets pointed. This has had quite an impact on our productivity.”
A&J Scott has seen a strengthening in demand across the board, but particularly for fencing.
“Fencing demand picked up at the start of Q2 last year and since then, other than the usual seasonal dips, demand has been strong and, if anything, has strengthened continually during 2017,” said Robert Scott.
“The landscape sleeper and treated fencing markets are performing particularly well, demand is strong and prices are moving upwards in a well-structured way. The boom and bust scenario looks to have been avoided, so hopefully some consistency will be seen moving in to 2018.”
He added, however, that the jury was still out on uptake of incised products. “There is a growing momentum but it’s been a bit hit and miss and I don’t think the trade is fully behind it at the moment. Wait and see for 2018.”
James Jones tells a different story on incised products, however, saying that demand for incised posts for domestic fencing was increasing year-on-year.
“People are starting to see the benefits of a 15-year warrantied product,” said Mr Pirie. “Demand is very strong across both fencing sectors, agricultural and domestic. For agricultural fencing our new pole peeler means we are able to increase our supply of strainers, which has been a historic bottleneck.”
He added that the mild winter meant demand had been strong from the start of the year, meaning that no-one had been able to build stock. This in turn had led to shortages and longer lead times.
BSW was also “pretty much sold out” at the time of writing and its treatment plants were at capacity. It has launched its own range of high-end fencing panels and has two new automated fence panel assembly lines, one of which is running at Carlisle, while the second is being installed ready for the end of September.
“We have a complete range, from Highways Agency motorway fencing, right through to general fencing – waney lap and closeboard,” said Mr Hackney. “We also have an imported offering of specially designed high-spec panels and have launched SoundShield, a tried and tested domestic acoustic panel, which we are talking to national housebuilders and merchants about.
“This has real potential and we are building stocks ready for a good season next year.”
On the pallets and packaging side, James Jones’s new unified structure (brought about by the acquisition of TWP Packaging, which bolstered its existing pallet offer through Unit and Larch) is starting to show real benefits, according to Mr Pirie.
BSW has experienced “steady demand” for pallets and packaging and is still enjoying the advantages of its strategic relationship with the Scott Group.
“My concern is there is a lack of confidence in the general market and that affects pallets and packaging activity,” said Mr Hackney.
“Export packaging has increased but I think normal pallet activity has been a bit depressed because of all the electioneering.” Production output is high across all British mills. A&J Scott, for example, said that it is at full capacity and expects that to be the case for the rest of the year. Meanwhile, Gordon Timber is at 100% capacity and working extra hours.
“Our production has gone up more than 7% over the last 12 months and we’re very encouraged by that,” said Rod Gordon. James Jones is also running at capacity at the moment, within the current planned shift patterns, and is ahead of last year’s output.
“The rate of volume growth has picked up as the year has progressed, so we anticipate 2017 volumes being significantly up on last year,” said Mr Pirie.
BSW is also at planned capacity, with more in the tank if the market dynamics – including log availability and price – call for it.
“We’re still operating on a three-shift basis at Newbridge and are running high activity at the scale mills at Fort William and Dalbeattie,” said Mr Hackney. “The others are at two-shift capacity, which is where they have been for many years. We have more capacity with the new investment so we can ramp up volume if we want to.”
Investments
Investments have continued apace throughout the sector. Charles Ransford, which has spent significant sums over the last couple of years, hinted at “exciting plans” which are at an early stage and A&J Scott is planning investment focused on added value and “a number of sawmill modifications” between now and 2019.
Its most recent investment, an upgrade of its Mill 7, is complete and the machines are performing well, according to Robert Scott.
“We have seen an increase in production volume, improvements in timber recovery and a reduction in downtime. All combined, this has helped us capitalise on the strong market throughout 2016/2017.”
James Jones’s Hangingshaw development will be operational during Q3. The £16m investment will allow the company greater production flexibility and provide undercover storage.
“The facility will have its own MHS line, incising line, kilns and treatment tanks,” said Mr Pirie. “This will be particularly important for fencing products as we will be able to stock build treated timber and store it away from rain and sunlight and avoid the seasonal shortages that impact the market each year.”
Other investments at James Jones include new treatment tanks at Aboyne, a post peeler and kilns at Mosstodloch, and a finger-jointing line at the company’s Timber Systems Division.
The company is also investing in its pallet and packaging business and said that some planned product innovation would be “a major step forward for the market, particularly for the food and drink sector”.
BSW’s new combined heat and power plant at Carlisle is performing well and there is the “potential” to install one at the Newbridge mill. Other investments are focused on adding value to product wherever possible.
The company is relaunching its Brushwood range, with new coatings and decorative applications and is to launch a new range of decking.
As well as investing in its fencing production, Gordon Timber recently unveiled its new purpose-built office, which as well as bringing staff together under one roof, rather than three, also showcases the company’s own timber production.
“It is clad in our own larch and our showpiece internally is a Douglas fir ceiling,” said Mr Gordon. “Then there are the bits you can’t see, such as the dry-graded joists throughout the building.”
The new building cost in excess of £500,000 and was designed by Robert Carrick of CMM Architects.
“He was extremely good in that he didn’t just give us some cookie cutter design he’d done before but, instead, he spent time understanding how the business worked and what we needed.
“It’s hard to quantify but having all the office staff under one roof and a new meeting room that all employees have used has created a positive environment to work in and has been great for morale.”
