Several of the trends identified in our previous hardwood market report have been reinforced over the ensuing three months, with many of the leading North American species continuing to firm in price and Far Eastern keruing remaining particularly difficult to source. At the same time, shipping space has become increasingly elusive and freight rates have moved up accordingly.

Amid all these hard facts, no clear picture is emerging with regard to UK demand for hardwood. The majority of companies contacted this week suggested that order levels had improved during the year, but others were adamant that demand was very quiet compared with last year.

Those in the former camp spoke of “quite active” and “consistent” order levels while the latter group pointed to a dearth of the type of commercial projects that tend to underpin the use of hardwoods, such as office fit-outs and refurbishment schemes. “There seems to be very little going on,” said one expert. “Everybody is fighting hard to get a slice of a smaller cake and people are worried that, with the summer holidays coming up, business won’t pick up in the near future.”

Competition

The strength of competition was highlighted by several sources. “This is a difficult business in which to make money,” said one. “It implies a lot of overheads – you need a lot of storage space, stock and expertise – and I don’t think the margins are high enough.” Not for the first time, it was suggested to TTJ this week that too many companies were vying for too little business and that consolidation would be the inevitable result.

The more bullish element of the trade has been particularly encouraged by developments surrounding North American hardwoods. A “dire” shortage of all thicknesses of white oak is reported from the other side of the Atlantic and this is expected to take several months to redress, even in the event of a good summer. The 4/4 price out of central and northern US is understood to have risen by 15-20% over the past six months, while the increase has been slightly smaller for supplies from the southern states.

Last year’s pronounced lack of green lumber in the US appears to have been overcome. As one regional expert explained: “The US is playing catch-up at the moment. There is now lots of green lumber that they can’t dry fast enough, so I suspect we will see these higher prices at least for the next quarter.”

Exchange rates

The UK has been effectively cushioned from the impact of these price increases by the continuing weakness of the US dollar in relation to sterling. Some reported good demand from customers who had delayed purchases in the ultimately fruitless hope that prices would drop before they needed to replenish their supplies. Others said that they had seen no evidence of panic buying and that UK buyers had continued to purchase very much on a hand to mouth basis.

While white oak has been grabbing most of the attention, prices of North American ash have also been firming but to a more limited extent. One regional specialist suggested lack of importer interest had created a shortage of a species that has long enjoyed a significant following in the UK, adding that ash was currently “a very good buy”. North American maple and black walnut prices have also been firm in recent months while cherry appears to have been relatively static and tulipwood is described as “plentiful and weak in price”.

&#8220There seems to be very little going on. Everybody is fighting hard to get a slice of a smaller cake and people are worried that, with the summer holidays coming up, business won’t pick up in the near future”

Most contacts are anticipating some sort of summer lull in UK buying activity but, at the same time, the availability to merchants of landed stocks of North American hardwoods appears to be lower than normal. And one source observed: “A lot of Europe closes down during the summer and this usually leads to more export availability, but the Americans tell us that isn’t going to happen this year.”

The price of Far Eastern keruing has increased by around 25% over the past nine months and is continuing to rise despite reasonably weak demand in this country. A number of factors have conspired to exacerbate a shortage of this species in the UK market: the strength of the plywood market has prompted manufacturers in the Far East to outbid sawmillers for supplies of logs which have already been reduced by a clampdown on illegal logging activities; in addition, customers in Thailand, Japan and the US are asking for more convenient specifications such that UK buyers are having to pay more to obtain what they need. Very little keruing is being offered on a forward basis, leading one source to comment: “I have got orders to fill for keruing but I just can’t get it.”

Freight problems

The impact of a troublesome freight situation cannot be overlooked. Several contacts pointed to a chronic shortage of shipping space and to an almost 80% increase in freight rates out of the Far East over the past six months. Several contacts were being offered firm prices only until the end of this month, at which point they were expecting the introduction of further freight increases of up to 10%.

The UK price of dark red meranti has also increased – albeit by a more conservative

5-6% – over the past three months. Demand was described this week as slack or merely ticking along, with buyers able to satisfy most of their needs from supplies on the ground in Europe. The potential for further price gains would be dictated to some extent by developments in the sapele market, it was suggested.

This West African species has also witnessed upward development of its forward price over recent months and further increases are widely anticipated, although the UK market is said to be characterised by fairly unspectacular demand and by instances of weak selling. An expert in African hardwoods noted this week: “Sapele prices had got ridiculously low and demand from Asia – and China in particular – has been very good.” The improvement in the sapele market has also been fuelled by the re-emergence of Spain as a strong buyer and by good demand at higher prices from the US. There are even reports that some producers are already sold out until next year.

As for other African hardwood species, the wawa price has improved partly on the back of short supply. Opinions vary on the strength of UK demand: one contact described sales as static owing to business closures in key consuming sectors while another hailed demand as very healthy. Iroko prices remain at a high level and Ireland continues to be a strong buyer, although supply of the country’s favoured specifications is said to have become more difficult of late. The rainy season has already begun in some of the major hardwood exporting regions of Africa and, as a result, log supply will become generally more difficult over the coming months.

Supply also emerges as the key issue with respect to South American hardwoods: there is a continuing lack of mahogany offers while availability of cedar is also more restricted at present thanks in part to strong US buying activity. More interest was reported this week in some of the hardwood species used in decking, flooring and general joinery work, including tatajuba, garapa and ipe.

Recent months have seen the introduction of “horrendous” freight rate rises while bunker surcharges were described this week as an open book because increases were being applied so regularly. “Freight charges are going through the roof,” one source complained. “US$600 per container was added to the basic freight rate, exclusive of bunker charges, from June 1.” There are already rumours that rates could go up by a further 10% from August 1.

These higher freight costs, plus internal overheads and good demand from China’s flooring buyers, have pushed up Brazilian hardwood prices.