After a welcome snap of cold weather at the end of February followed by a relatively dry spring, logging conditions in many parts of the Baltic region improved. Although much of the state-owned forest in Latvia is still under entry restrictions until September of this year, the sawmills have seen an improved flow of fibre from both independent domestic producers, and imports from Sweden and Russia.

The planned increases in Russian log taxes are forecast to slow imports down after July but, to compensate for this, some of the Baltic mills are already buying Russian large square sawn sizes to convert to further processed specifications, thereby avoiding taxes on roundwood.

Baltic mills hope that current production will remain stable until the early autumn, but a slowdown in log imports is expected to push up the price of raw material on the domestic market. In Latvia sawlog costs have already risen by more than 50% over the past 18 months, and this has put pressure on shippers to obtain price increases at the beginning of each quarter to maintain their margins.

Carcassing stocks

The UK market is well stocked with carcassing at present, particularly in planed and regularised stock that has been boosted over the past three months by imports from Canada. As most of the Canadian volumes have been imported from the east coast, specifications have been limited by thickness, and to a maximum length of 4.88m.

This has caused some serious imbalances at the quaysides where volumes in some specifications have been sticking. As always, specification is everything, and those importers with the best spread of sizes and lengths, still command the highest price and obtain the most consistent sales.

In spite of the need for the Baltic mills to strive for increases on the forward market, competition among UK importers trying to balance their inventories and offload excess stocks has driven the domestic re-sale price down sharply. Under these circumstances, the prospect for Baltic shippers to achieve higher prices in the third quarter looks uncertain and, at the moment, the probability is that prices will remain at current levels.

As the trade keeps an eye on the effects of the global economy, its attention remains focused on the weakness in the US housing market, and the knock-on effect it is having on shippers. This downturn in the US is not only impacting on Canadian mills, but is also hitting exports from Baltic and Nordic shippers. With stock levels under pressure in the UK and ‘special offers’ for carcassing in wide circulation, UK merchants have been given the impression that supply shortages are over, and prices have peaked.

However, the flood of wood that was expected from Canada appears to have receded due to the gaps in shipping infrastructure. The services between Canada and the UK that existed in years gone by are unlikely to become re-established due to competition from other industries such as steel, and this is keeping freight prices high and vessel space in short supply.

If this situation does not improve or alter, it is likely that future cargoes of Canadian lumber will become more limited to those importers and wholesalers large enough to sustain repeated volumes of 6-12,000m3 per vessel, or where shippers and receivers plan ahead to combine their volumes.

Shipping options

The alternative to large break bulk shipments is via containers, where individual volumes can be as low as single trailer lots. But for this to become a viable option in the UK, handling, turnaround times and forwarding costs would need to improve dramatically before any significant long-term volumes could be handled at the ports. This leaves an opportunity for the medium-to-large Baltic mills to maintain regular shipments of manageable volumes to the UK via the current established sea routes – if they can continue to produce suitable specifications.

But as well as competition from other exporting countries, the Baltic sawmilling industry faces other challenges for the future, such as the combined effects of inflation, and the ability to retain skilled labour. These are problems which other producing countries such as Sweden have wrestled with in the past, and the outcome has always led to increased investment, improved mechanisation and rationalisation.

There are signs that this is already happening in Latvia, where the larger mills have made substantial upgrades to their equipment, and reduced their reliance on the level of manpower needed. The bigger producers are in a noticeably stronger position to offer volumes and specifications attractive to buyers over the smaller operators that are struggling to make ends meet or even retain a presence in the market place.

There have been several closures amongst the smaller mills over the past year as softwood production has become unviable. Many other enterprises have either converted to manufacturing specialised niche products, or they have moved away from forest products entirely. So, the trend for the big to get bigger, and the small to disappear, now seems set to sweep through the Baltic states.