September turned out to be a fairly active trading month in the UK, particularly when compared with the same time last year.

However, towards the end of the month business began to tail off and an air of caution spread amongst merchants; many are now viewing the prospects for the last quarter with a high degree of scepticism.

Some merchants said that, as the first signs of bad weather emerged, orders from the housebuilding sector were weakening as developers turned their attention to finishing house shells already constructed for occupancy before Christmas.

Quayside terminal operators confirmed a general slowing down in demand for kiln-dried structural sizes which indicates that the merchants’ stock levels must be sufficient to satisfy demand.

However, on the supply front, there are agents who are desperately trying to obtain reliable offers as raw material shortages in the Baltics worsen. This relates more to unseasoned ungraded stocks than kiln-dried and graded specifications but, generally, there are severe supply shortages and shipments are running late.

In Latvia, there is a chronic shortage of sawlogs, and prices are said to be shooting up as the mills are outbidding each other for supply. Reports indicate that larger mills have paid up to 30% more for full diameter whitewood logs, while smaller mills are not getting a look in.

These higher log costs will have to be borne by those mills still trying to fulfil unshipped contract balances, but shippers taking on new business must increase their selling prices of sawn timber without delay or face endless loss-making. Although the UK market has accepted some higher prices, there is little evidence to show that demand is strong enough to persuade importers to accept any significant increase between now and the year end.

The log shortage is affecting the specifications that the sawmills are able to produce and production schedules are tight, making it difficult to plan cutting programs. As a result, the yield is not so easily matched with buyers’ requirements.

Some UK-based agents have suggested that there will not be any significant improvement in the supplies from the Baltics until next spring, and there are British importers attempting to cover their requirements for the first quarter of 2002 in the hope of securing some volume at current price levels. However, some traders believe the situation will ease over the next month or so and, as log supply becomes more plentiful, prices will ease back.

The head of one of Latvia’s most modern mills, which normally has access to a consistent supply of logs, said that if felling was to increase now, it would take several months before there was a return to full production across Latvia. This seems to suggest that Baltic carcassing prices will at least remain firm if not increase through to the year end.

Reports by the Latvian statistics office indicate that Latvian timber-based exports have risen by 1.5% from the beginning of January to the end of July against the same period last year. This does not tie in with reports made by the Latvian softwood sawmills which generally speak of reduced exports. The figures may contain volumes of trans-shipped lumber which originated from other countries such as Russia but loaded at a Latvian port.

Swedish returns

With the krona nudging towards an exchange rate of SKr16/£1, Swedish exporters’ returns from the UK market continue to rise, particularly in whitewood which has additionally increased in sterling selling levels.

Although the Swedes are enjoying favourable market conditions, agents report that there are no great volumes of whitewood being offered to the UK and the mills are taking a bullish stance on price.

Whitewood prices have also risen on the Continent by between €5-7/m³ for joinery grades, and 22mm boards have been selling steadily without the usual glut. The Swedish domestic market is reported to be strong, which is another contributing factor in keeping supply more balanced.

The redwood market has remained stable, with very little movement on price. There are shortages in some sizes, particularly in 25mm Scandinavian fifth boards where demand from the DIY sector has proved very strong. Stocks both in the UK and at the mills are fairly well balanced with no massed volumes overlying at the ports. Even at Hull, which is usually weighed down with landed stock, volumes are much lower than normal.

All sources report that the cut-back on production by the large Finnish producers has had a noticeable effect on the market, and some Swedish redwood producers have taken advantage of the gaps in the Finns’ stock.

The main weakness in the redwood market seems to be a reduced demand for unsorted quality. This is something of a turnaround as it was not that long ago that the mills never seemed to have enough to satisfy buyers’ needs.

According to several sources in the Scandinavian sawmilling sector, Russian shipments have had little impact on sales this year although there is widespread recognition that the consistency of Russian bracking has continued to improve.

Strong demand

Russian sawn goods have been in strong demand from regular buyers and there have been a shortages in basic sizes such as 50×100/150 in fourth.

Agents report some increases in the number of offers received from Russian shippers but, in many cases, specifications have been at odds with customers’ requirements.

Some Russian businesses are looking for importers willing to make pre-payments against volumes to be shipped on a forward basis; agents have warned that buyers’ funds could be under serious risk if they embark upon this type of transaction.

Although there is no surplus of redwood at the Russian ports, the tried and tested producers are still the best bet for reliable shipments to the UK and they are the most likely to offer the best quality and specification.

There are plans running by the Russian parliament to cut export taxes levied against metal and timber. They equate to around 20% and directly affect producers’ cash flow. A relief from this level of taxation would give shippers a greater incentive to increase volumes of softwood for export. The authorities are also stepping up economic and environmental policies to maximise returns from natural resources.

The Karelian government is reported to be adopting a new approach to harvesting from state-owned forests. Tenders will be selected on the efficiency of use of each cubic metre of felled wood, including the use of low grade material and waste residues as well as commercially recognised grades.

Finnforest is reported to be in talks with officials over a sawmilling operation to be based in Russia using the forestry arm of Thomesto. Finnforest will consider how products may be sold into the Russian construction market where there is huge potential. Internal demand could absorb so much timber that exports would almost cease for a time.

The greatest struggle in the softwood market is that of Canadian wood exporters and the US government. Since the lapse of the lumber agreement between the two countries in the spring, the US commerce department has ordered a replacement duty of 19.3% against Canadian mills exporting to the US. British Columbia, which accounts for half of the US timber imports, has been suffering the most. Eleven mills in the province are closed temporarily and the other 24 are running at reduced capacity.

Since the duty was imposed on August 10, around 15,000 workers in the BC forest products industry have been laid off. The Skeena Cellulose mill has been closed after negotiations with its bankers failed to extend loans. In the past, Skeena has received substantial government aid, which has helped maintain employment but, such is the economic climate, the only hope is the outside chance of a buyer emerging.

Now the US is considering additional duties and the levies faced by Canadian producers could potentially exceed 30%.

In disagreement

However, a significant part of US industry disagrees with such moves, and the American Consumers for Affordable Homes, an alliance of 15 members including Home Depot, has approached President Bush. They highlighted the fact that the US timber related industries employ more than seven million workers, and such duties would affect prices and ultimately housing investment, which is an important factor in keeping the US economy from contracting.

Since September 11, lumber producers have reported a sharp drop in demand and Canadian timber producers are reported to be bracing themselves for a hard time ahead.

The Japanese recession is having a painful effect on west coast producers and, with such a difficult backdrop to trading, the question might be asked whether BC will have a lumber industry in two years’ time.