An increase in global demand for softwood has helped Baltic producers to achieve full order books and to improve their selling prices for forward contracts. Sales to the UK have been made on a rising market but, with less wood in circulation, the need for cut-throat competition has diminished, leaving little differentiation between Latvian and Swedish carcassing price structures.

Although log supplies in Latvia have steadied over the past few months, some shippers are still nervous that the picture could change because the mills are working from shorter-term supply cycles. During the second week of June, news began circulating around the Latvian softwood industry of a rise in log costs equivalent to around 7%, which, according to one sawmill, would yield the highest cost level to date.

Russian tariffs

In addition to the rise in internal log prices, export tariffs on cross-border log supplies from Russia are likely to aggravate the situation. In order to maintain volume and quality requirements, a number of the Baltic mills still rely on importing a percentage of their logs. But the Russian government has been critical of the high volume of roundwood exported, and customs duties are now designed to discourage log exports and encourage the growth in sales of processed and value added products.

This problem not only affects Baltic mills; Finnish timber and paper mills are expressing concerns over the increased costs of Russian fibre, and companies are investing in primary processing plants within the Federation itself. Statistics have shown that European forests have been expanding by an average of around 650,000ha a year, with an increase in growth of well over 300 million m3. Russia accounts for 80% of the whole area (20% of global forests) which underlines its power in the market place.

In spite of the statistics, all producing countries have been affected by some log shortages at the mills, and with reduced volumes affecting the open market there has been an increase in late shipment. In some cases, exporters have failed to ship at all, leaving importers with large gaps in their specifications, or in some cases very little to sell.

These factors have affected the unseasoned market, and prices in the UK have risen by a figure of £6/m3 as demand has outstripped supply. While those importers with significant landed volumes have seen an increase in the value of their inventory, most feel that current market levels are still inadequate when replacement costs are taken into consideration.

The market for dry-graded material has improved over the past few weeks, with UK merchants and importers reporting increased sales. Some traders speak of an improved level of confidence, but others hold the opinion that sales are running both behind and below expectations.

Selling prices

Current selling price levels have risen but they are not fully reflective of the advancing trend set by the forward market. Shippers prepared to accept contracts beyond the summer holiday are obtaining an extra £3-5/m3 for September shipment and onwards, but there is a reluctance to commit too far ahead at this stage because the market is expected to strengthen further.

The trend towards planed regularised material continues to forge ahead, with many merchants converting their stocks away from the sawn finish. Baltic producers have been involved in this market for several years and, in the past, the extra planing service was almost given away to create a marketing advantage.

As the demand for planed carcassing has grown and production costs have risen, a sales differential of around £6/m3 over the sawn price has become established. In today’s environmentally conscious world, there is an argument that this extra processing is an unnecessary waste of energy. Technically speaking, the gain to the end user is purely down to appearance, and in most cases the wood suffers a reduced dimension, making it a looser fit in structural ironmongery such as 50mm joist hangers. If the goods were more accurately sawn and kiln dried to standard tolerances in the first stage of production, there would be no need for the industry to consume the extra power.

Faced with a future of high log costs, Baltic producers have been working hard to expand their export markets and increase the value-added content of their products. One of the most important markets they now sell into is the US, but recent increases in US interest rates have cooled the housing market. Shippers feel this is unlikely to have an impact on the market until next year so, for the time being, all indications point to demand remaining one step ahead of supply with prices continuing to edge upwards.