It’s been nine months plus of extremes and superlatives in the UK and wider European sawn hardwood sector.
Importers say the trading environment has been like nothing they’ve experienced during decades in the business. Demand has climbed across key markets. Freight rates have reached unprecedented levels. Supply has become exceptionally tight and lead times have stretched from sources globally. Prices have consequently hit the heights, while margins are described as good to extremely so.
“It’s been a challenging time in terms of obtaining supply, operating a managed volume sales system so we can service as many customers as possible and keeping up with shipping costs hitting stratospheric levels,” said one importer. “But if you didn’t make money in the hardwood trade over the last year, there’s something wrong with your business model!”
In September/October traders detected the energy going out of the sector to a degree. However, the consensus is that the overall market, at most, is set for a gradual adjustment to lower levels of growth and consolidation rather than any marked reversal.
After slumping in Qs 1 and 2 2020 during the first pandemic lockdowns, hardwood consumption is reported to have started to recover towards the end of May early June. The next 12 months saw a pretty continuous upward curve, with the first half of this year proving particularly frenetic.
A key demand driver until recently has been the boom in home improvement, refurbishment and DIY markets triggered by consumers deciding to spend money saved from not taking holidays and leisure activities due to pandemic travel and social distancing restrictions on houses and gardens, plus converting their properties into living/work spaces.
This is one market where some hardwood businesses report activity slowing in the last few months, as Covid restrictions eased and more people took holidays and spent more on other leisure activities, leaving them less disposable income.
“But business hasn’t dried up overnight,” said an importer/distributor. “RMI customers still report pretty good order books.”
Some importers saw the wider construction sector also losing momentum late summer/ early autumn this year.
“Builders are facing rising prices and shortages across all raw materials and some land banks are deferring development projects, presumably to wait for supply to improve,” said one.
Again, however, in general construction joinery traders say it’s a case of growth slowing rather than demand falling back and window, door and staircase makers are reported still very busy.
Despite the raw materials situation, the Construction Products Association in July actually increased its forecast for UK building output growth in 2021 to 13.7%, up from 12.9% in April, and its prediction for 2022 to 6.3% from 5.2%.
Distributors report recovery in hardwood demand from furniture manufacturers and hospitality markets too. Some say even shopfitting, which was devastated in the pandemic, is showing signs of life.
In terms of supply, importers report African hardwood producers affected later and less severely by Covid than counterparts elsewhere. However, pandemic safe working has increasingly impacted output and lead times have extended.
Administration has been disrupted too, resulting in export documentation delays.
Of the lead African species, iroko availability is described as reasonable, but utile as “very scarce”. Views differ on sapele supply. Some importers say they’re securing sufficient volume, others report less coming out of the forest.
“We’re not entirely sure why, but it seems it’s less abundant in current areas being harvested, both those undergoing first and second cut, and it’s not an issue isolated to one region,” said one importer. “We just spoke to suppliers about prospects for 2022 and they all expect the situation to worsen.”
Secondary African species are reported to have gained some traction through the pandemic period as supply of main commercial species has tightened, but the “conservative UK end users” are still proving more resistant to switching than other European counterparts.
African timber prices started rising later than those of other sources, but are now up 25% on the year, with another 10% said to be “in the pipeline”.
“Given the supply situation, particularly in sapele, we’re also increasingly feeling this will be a permanent reset in African prices at higher levels,” said an importer.
The key topic when it comes to imports from Asia remains freight rates. A 40ft container from Malaysia or Indonesia pre-pandemic cost US$1,500-2,000. By Q2 2021 importers were being quoted US$15,000- 20,000 and rates have stayed there. This is attributed mainly to the disruption to world trade caused by the pandemic and empty containers stockpiling in the wrong locations.
In response, there has been a shift for some wood products, such as plywood and sawn timber, to break bulk. But shippers have capitalised and put rates up here too.
“The charge for the vessel Konya back in May was US$170/m3, but it’s since gone up to US$260,” said an importer. “That equates to a cost of US$8,000 for a container load, so it’s still expensive.”
Breakbulk has not proved a straightforward solution either.
“It takes longer than container freight and is more complex to manage,” said an importer.
They added that Konya, out of Malaysia to Rotterdam and London Tilbury, spent three months discharging at the latter, partly as the port was so busy, partly because it was the first timber breakbulk into the port for years and dockers weren’t used to the work.
“Breakbulk also doesn’t work for more vulnerable and valuable goods, like flooring,” said one importer. “We’ve just had to pay the container rate and trust customers cover the cost. Asian timber price rises this year average 8-10%. Freight has pushed that to 30%.”
No-one sees container rates changing significantly anytime soon and another timber breakbulk vessel is due to set sail from Asia for Europe shortly.
Importing from Brazil is also proving a greater challenge.
“Prices are sky high, driven by US and wider global demand and Covid, which has restricted mills’ output,” said an importer. “The combination of the pandemic and political turmoil has also hit administration and it’s increasingly difficult to secure export licences.”
US hardwood supply to Europe through 2021 was described as turbulent. Mill capacity was reduced by Covid absenteeism, safe work strategies and what some saw as the government’s pandemic ‘paycheque protection programme’ disincentivising employees from returning to work.
Add in booming US domestic demand, and the widely broadcast result has been sharp declines in availability and sharp increases in price. At one point this summer, a UK importer described 4-quarter American white oak as “vanishingly scarce” and forward order availability “non-existent”. The price had doubled over the year, as had that for tulipwood, while walnut was up 65-70%, maple 40% and ash 50%.
Availability was not helped by some hardwood mills switching to softwood to capitalise on US construction demand.
The US situation does now seem to be easing, with more “offers on the table and timber in the pipeline”. Despite this, little change is expected in prices.
“Mill inventories remain low, they’re still enjoying strong demand from US construction and green lumber prices are rising,” said an importer. “There have been some lower spot market prices, but they seem down to suppliers trying to shift particular stock.”
Given the US hardwood price and supply situation, there has been some switching to European species, notably oak. Due to this and rising demand elsewhere, plus it is reported the decision of the Croatian authorities to put higher oak grades from state forests to auction rather than sell by tender, prices are up 25-30% this year, with further 3-5% rises anticipated in coming quarters.
European oak availability is also reported to have declined recently and concerns were expressed about the prospective impact of Russia’s log export ban, set for introduction in 2022. This is expected to lead to more demand for European hardwoods from other markets, notably China.
European beech is also reported to be up in price 10% in the year to date and one importer said they were experiencing longer lead times. One factor seems to be substitution of tulipwood by beech as a paint grade due to the former’s high price.
Sales of modified softwood have continued to climb and a distributor said they could have sold 30-40% more Accoya if available. However, output from producer Accsys Technologies was reported to have been restricted by disruption during the pandemic in supply of the New Zealand radiata pine on which it’s based, plus capacity expansion at its production site.
Underlining the manufacturers’ confidence in further growth, it acquired the production facilities of rival modified wood producer Lignia, which went into liquidation in April of this year.
An importer of engineered grandis eucalyptus from Uruguay, also reported constraints in supply due to the pandemic, plus strong US demand.
Looking forward, the mood of the hardwood sector remains positive.
“The last quarter may not be as good as the exceptional first three, but it’s looking decent, so that still adds up to a very good year. We’re expecting turnover up 20% overall,” said an importer.
“With economies still emerging from pandemic, and our inventories still down at 55% of normal, 2022 is difficult to call. But on balance we’re expecting a steadier but still strong market with prices at most plateauing and some even edging up further. A return to anything like pre-pandemic price levels remains a million miles away.”
