• Redwood shortages in the UK are widespread.
• Thicker sizes in whitewood joinery are also becoming tighter.
• Importers are re-converting some stock.
• UK carcassing prices have risen around £10/m³ in the past week.
• Russian plywood prices have fallen by around 20%.

The Russian softwood market has gone through significant changes since the last quarter of 2008 and, in common with most supplying countries, there have been considerable cutbacks in production. These have now reduced availability to the point where demand is actually exceeding supply.

In the Archangel region, sawmilling activity has been generally reducing for six months, with only a few mills left running at any serious level of capacity. From that limited overall production capacity, a fire at Mill 26 stopped production on May 4.

This general reduction in output has manifested itself on the ground in the UK, with redwood shortages becoming widespread. Sideboards across all grades are particularly difficult to find, and shortages are now evident in 22/25mm whitewood boards as importers hunt for alternative stock from which to produce planed goods.

As the supply situation continued to tighten, importers with landed stocks benefited from some price recovery and terminal operators found it easier to turn over their slow-moving specifications by re-converting from larger sizes. Customers have also been more willing to re-saw goods themselves.

Replacement costs

With reducing supplies, and the full impact of production cuts now hitting the market, replacement costs on the forward market are steadily increasing, and selling prices in the UK are expected to gain a further £10/m³ over the next six to eight weeks.

This position is a turnaround for terminal operators and importers, who suffered punitive stock write-downs up until the end of February. Since demand picked up during March, they have been able to edge prices upwards to the point where they stand the chance of making a margin.

Unfortunately, because inventories are now very low, and specifications have become so fragmented, many wholesale traders are being forced to turn down enquiries because they don’t have the goods. One contact commented that if a balanced redwood specification became available, he would buy 10,000m³ for prompt shipment.

Nordic producers

Competing Nordic producers have also increased selling prices, and their long-term cuts in production have created shortages, causing importers to struggle to cover their Swedish and Finnish requirements. One agent commented that because prices have accelerated rapidly, not all shippers have kept pace with the market, and this has created some short-term disparities of almost £30/m³ between different export brands for redwood 5ths.

With landed stocks becoming depleted, importers and merchants must achieve the best margins possible, as replacement costs will be much higher. Only the value of sterling could make any great difference to the situation if, for example, the euro weakened against the pound significantly, enabling selling prices to ease by the difference in the exchange rate. Alternatively, shippers could attempt to maintain current sterling levels to make an improved return, but offering UK importers better specifications as an inducement to forego currency savings.

Thicker sizes in whitewood joinery qualities are also becoming tighter as importers’ inventories reduce, particularly in Continental markets.

Carcassing prices firm

There has been a firming of carcassing prices generally as the gluts left over from 2008 have finally cleared as a result of improved demand since the beginning of March. In the past week, merchants have confirmed increases of around £10/m³ in the UK as selling levels start to reflect forward contract prices.

Sawmills in every exporting country, including Russia, need to increase prices in order to ensure long-term survival. Gains made during 2007 were wiped out last year as the carcassing market virtually crashed. Prices have a long way to go before they reach realistic levels again – in some cases they are the same or even lower than 15 years ago.

Against this background, the UK trade is again caught up in a position of fragile demand in a highly competitive market, yet supplies are constricted and unsteady with increasing costs. It seems the softwood industry is running in a continuous cycle, constantly subjected to gluts and shortages, with wild price fluctuations.

The Russian plywood market has also fallen victim to reduced demand, with some prices falling more than 20% from peak levels over the past year. Mirroring the softwood market, demand improved through March and April, leaving mills virtually outsold for May and partly into June.

Birch plywood prices

As a result of higher sales volumes, birch plywood prices have been recovering gradually, and it is anticipated that they will continue to strengthen on the forward market by a few percentage points at a time.

In common with other countries, the general Russian economic situation has been affected by the global recession, and the sudden drop in major commodity prices has been felt particularly in the oil and gas industry where revenues and investments have reduced considerably. Because Russia’s commercial sector has been so reliant on a narrow band of commodities, mainly in the energy sector, future government policy will be designed to expand and widen the industrial base.

To maximise the country’s potential and harness its natural resources, further investment will be encouraged in the forest products sector. An example of this is Austrian-based Mayr-Melnhof Holz GmbH which, along with Russian partner LSR Group, has just started trial production at a new sawmill in the St Petersburg area.

The mill is geared to producing around 350,000m³ per year, making it the largest and most modern whitewood processor in the region. A further expansion is planned in 2010, when a laminated beam factory will be built, bringing the investment value to €80m.

According to an LSR press release, the plant will employ 250-300 personnel at full production, and will provide a surplus tax revenue to the St Petersburg region of around 120 million roubles per year.