The softwood supply chain is still suffering from shortages of whitewood logs at many of the mills but, with demand unevenly spread across the UK, some traders are more concerned with selling at any cost rather than worrying about replacements.
Although forward prices remain firm, a level of panic selling in some areas of the country has led to a weakening price from the quayside right through to the end-user.
There have been reports of the re-emergence of ‘price wars’ in different parts of the country, and reductions of as much as 7% for carcassing have been conceded.
After reducing price levels, the task for merchants to reverse the process is lengthy and extremely difficult and, in the interim, margins can get squeezed to virtually nothing.
Demand has become the key issue in the carcassing market and many sources have reported that not only were January and February quiet months, but March has not started at the level everyone expected.
In spite of the log problems at the mills and late shipments, landed stock levels of carcassing appear to be increasing, with dry-graded specifications coming under the greatest pressure.
Poor weather has kept housebuilding activities to a minimum and, as a result, sales of joist sizes have been hit very hard. However, the picture could change dramatically if a release of pent up demand occurs.
The supply of whitewood to the mills is extremely poor, which is largely the result of adverse logging conditions that have been caused by the mild weather in northern Europe. Current conditions would indicate that the shortfall in winter extraction is unlikely to be made up and in Latvia shippers are facing difficult times as log volumes are at their lowest, while their prices are at their highest.
Swedish whitewood
In Sweden the large forest groups are reported to be keeping whitewood stocks to themselves in order to provide fibre for their own sawmills. This has forced others to source whitewood from outside, and some mills in the south have cargoes arriving from Russia.
These conditions throughout the sawmilling industry are expected to create severe shortages, which could bite within weeks rather than months. The situation is reliant on the strength of demand in the second quarter, most shippers anticipate large gaps in specifications and extended lead-in periods against new contracts.
This position would have a direct result on price, and logic would point to an upward trend with any stand-off between importers and exporters being swept away. If this situation arose, the merchants would be forced to re-establish market levels and go back to the end users for an increase.
The same circumstances apply to sawfalling whitewood for joinery, where many sizes are already thin on the ground.
Prices for 22mm boards have risen and volumes are in short supply – whitewood sideboards usually prove to be a reliable litmus test for the state of this market – and agents confirm difficulties in obtaining specifications in other products such as 38x250mm and 25x275mm used for stair manufacture.
The redwood market has been stable since the beginning of the year, with consistent demand from the joinery, furniture and manufacturing sectors. After a steady rise through the last quarter of 2001 prices have reached a plateau but, as stocks are in balance, there has been no sign of significant weakening.
The only notable exception has been for middle-cut dimensions in fifth grade produced in the upper gulf where some accruals have resulted in cheaper offers.
However, general specifications have become much harder to acquire than normal and there are numerous reports of shortages, with 200mm and 225mm sideboards absent from many of the mills’ inventories.
Supplies from Finland have been tempered by reductions in output and one shipper reported that only about 75% of enquiries for the second quarter could be satisfied.
Russian cargoes have been received well but there are fears that supplies may be restricted later in the year because of internal changes and problems.
One distributor remarked that current prices needed to remain firm because a reduction in volume was anticipated.
The timber industry in Russia is attracting attention from the government and there is the possibility of a return to some form of nationalisation.
The timber sector has a turnover approaching US$8bn, of which around 17% is exported as sawn wood.
Commercial alliance
A body representing the exporters in the form of a commercial alliance has been in talks with the industrial, scientific and technology ministry to examine ways in which areas in Siberia and the north-west might improve capacity and upgrade processing equipment in the future. The matter is to be discussed at a formal meeting at around the end of the month.
Also on the agenda is the proposal of increased rental income from logging areas; this is intended to replace export taxes, VAT and the taxation company profit. The move is designed to assist profitability within the wood processing industry and help it to develop further. The committee for natural resources has suggested that the increase should be US$3-4/m³ on the current level resulting in a new figure of around US$7/m³.
Logging rights could also be used as loan collateral for investment and a system of voluntary timber certification is also being considered.
The impression gained from the political situation indicates that there is a strong belief in government that the big Russian commodity companies are becoming too isolated and there appears to be a will to regain some form of state control over natural resources.
Central Europe
Turning to the central European markets, Germany is still reported to be quiet and the latest figures published by the German Timber and Furniture Association indicate that turnover in 2001 fell sharply to levels of 1995 with over 10,000 redundancies. A recovery of 1.5% is predicted for this year but it follows a substantial fall of over 5% in 2001.
The Belgian market is busy and buyers are chasing late shipments from Russia as stocks are running low; prices are reported to be steady but not advancing.
Whitewood prices have increased in the Dutch market and demand has risen in both Spain and France.
In spite of the burning issue of lumber tariffs between Canada and the US, Canadian producers are still uninterested in the UK market as prices are too low to consider.
Contacts who are still in touch with both eastern and western shippers confirm that even when tariffs are taken into consideration, prices in the US are still more attractive.
A result on the dispute is likely within the month as talks have involved Canadian prime minister Jean Chretien and president Bush; however, the Canadians still reserve judgement on the issue and further approaches to the WTO have not been ruled out if a just settlement cannot be found.
British Columbia has been under continual pressure for many years, and many mills have closed, leading to thousands of job losses.
Market changes
The first big change to their market came with the European mandate that virtually all softwood species from Canada had to be pasteurised before they could be exported to the EU. This imposed a cost penalty which drove the shippers to find other markets and they concentrated on the Pacific Rim and US.
The weakening of the Japanese market, combined with US tariffs and environmental pressure to cut logging, has hit hard. In a further bid to adapt, the Canadians are now looking towards China and there are hopes that they can convert the Chinese housing market to their own style of timber frame designs using Canadian standards.
Engineered wood products have continued to displace solid timber beams in the UK and their success is now becoming acknowledged by the industry. Sales in mainland Europe have increased and there are even licensed fabricators in Russia.
It was only two years ago that the majority of traders paid little attention to the impact that I-beams would have on the softwood market – in fact, two years ago there were few shippers from Scandinavia and the Baltics that could readily describe an I-beam. Now virtually everybody is acknowledging their growing demand and their effect on traditional softwood in housing.
