¦ Softwood prices appear to have reached a peak.
¦ UK buyers are cautious over stock levels.
¦ There is little discussion of sales beyond January/February.
¦ There have been improvements in credit cover.
¦ British-grown carcassing has gained some market share.

With the year-end in sight, the general feeling among UK importers and merchants is one of relief that 2010 turned out to be less painful than anticipated. While it is acknowledged that there was a struggle to pull in orders, increases in selling prices and the appreciation of inventory values helped to underpin overall trading margins and contribute to profit.

During the year, the trade has benefited from improvements in credit insurance, with more realistic limits being underwritten. The improved credit limits followed a long and sustained reduction in credit cover when limits were being withdrawn across the industry. These developments have helped to improve the sales position allowing new accounts, and to strengthen business relations with existing customers.

Now that softwood prices appear to have reached a peak, some softening in the UK market has become evident. There is a high degree of caution over stock levels amongst importers and merchants who would prefer to be in a position to take advantage of discounts as soon as they become available.

With the onset of winter, nobody wants to finance surplus inventory, particularly during the Christmas holidays when trading virtually stops. Stocks valued at the higher end of the scale will become a liability if competition increases and traders need access to lower priced material.

Wider Europe

In the wider European market, there are signs of price drops on the Continent as buyers are countering shippers’ offers by as much as €20/m³ for some items, but these negotiations are from peak levels. From the shippers’ perspective, the pound’s weak performance against the euro and Swedish krona has left sawmills with little room to lower sterling prices to British buyers – in fact they are already absorbing the best part of a 6-7% slide from September 1 exchange rates.

In the carcassing market, demand for home-grown spruce has continued, with merchants taking advantage of the cheaper prices compared to those of imported material. British sawmills have been able to shadow the upward movement of Nordic and Baltic goods yet remain more competitive. Without the currency fluctuations and logistics costs, they have been able to price attractively enough to compensate for the lack of higher graded C24, yet make good margins. But in line with all other forest-based markets, log prices have been edging upwards continually, and home-grown sawmills are now paying a relatively high price for fibre.

Competition amongst wholesalers from landed stock is setting price levels too close to shippers’ ideas of forward replacement costs, and the gains in inventory values made earlier in the year are becoming offset by current trading conditions. As a result, there are few operators who are prepared to place new contracts with the mills over and above the minimum required to keep specifications intact. With a general fall in global demand, supply problems have eased considerably, and most importers contacted said that they were able to access stocks from exporters with relative ease.

A similar situation exists with the merchant sector, where many are asking distributors for rapid delivery at keener prices; and to keep stocks in trim they are only asking for half loads. Rather than lose sales, some importers and wholesalers are accepting these conditions to keep cash flow moving.

While there is caution among importers to ensure they don’t buy at top prices, shippers don’t want to sell too cheaply. Although some contracts are being placed for 2011, a lack of confidence from both sides has resulted in little discussion beyond January/February positions.

Looking forward at the carcassing market, one importer commented that 2011 is likely to be the year that 2010 was expected to be, and it’s now a case of battening down the hatches and keeping costs on a tight rein and seeing what transpires in the new year.

Joinery markets

In joinery markets, redwood selling prices have reacted in a similar manner to whitewood as a price plateau has been reached. After some acute shortages of certain specifications through the third quarter, supplies are now loosening up. But for some traders it is too late as demand is falling, and their customers were forced to compensate for delays by seeking material from alternative sources to get material on time. Redwood stocks are adequate, and there are discounted offers in the market across most grades.

Taking a general view of supply, exports seem to be showing growing interest in the UK market, and that will be of benefit to the trade next year. High volumes of softwood have been ripped away from the UK and Continental markets in favour of the growing economies in North Africa and the Middle East, leaving some of the traditional markets struggling to meet their requirements.

At the meeting of the UNECE timber committee held in Geneva last month, adjusted statistics for UK imports showed the difference between forecasts and actual results. From the original estimate for UK sawn softwood imports for 2009, the revised total was published at 4.859 million m³. This is a difference of 1.251 million m³ (-20.47%) from a forecast of 6.11 million m³.

To put this figure in perspective, the mean average import for the three years 2005-2007 was 7.563 million m³ per year, meaning that the UK imported softwood trade absorbed a severe drop in volume of just over 35% during 2009. In 2008, there was an interim slide of over 2 million m³ (-27%) below this average.

Estimates for this year show an import figure of 4.95 million m³ with a rise to 5.12 million m³ in 2011. With such volatility in the UK imported softwood sector, there is little wonder that many UK agents and importers who were contacted spoke of “uncertainty”, “the need for a crystal ball”, and an “unknown grey area” when trying to assess next year’s imports.

With these statistics the long-term stability of the softwood trade seems to have vanished, but the growth in value-added/process components, and engineered wood in particular, cannot be ignored in playing a significant part in the reduction of sawn imports of both redwood and whitewood.

UK production

UK domestic production figures give a different slant to the overall softwood picture, as the 2009 figures for the home-grown industry were revised upwards to 2.824 million m³ from an original estimate of 2.63 million m³.

While apparent UK consumption for 2009 was less than forecast in 2008, the final figure for 2009 was 7.505 million m³, less than 12% below original estimates, showing that softwood end use did not fall as low as the trend of imported wood.

Figures for this year’s production levels from the major north European exporters show that Germany and Austria combined will have cut around 30 million m³, with export levels of over 43% at 12.997 million m³.

Sweden is expected to have cut around 17 million m³, of which 66% (11.25 million m³) will have been exported.

Finnish sawmilling figures show an increase over 2009 of 1 million m3 to 9 million m3. This level is expected to be maintained through 2011, but some of the large forest products groups are determined to keep pace with demand and refrain from cutting in anticipation of the market’s needs. Finnish exports are forecast to reach 5.5 million m3 for the whole of 2010, with a similar figure for next year.

Production in the Baltic states is forecast to be around 4.385 million m3, with exports touching 2.92 million m³.

Russian mills report that 18 million m³ will have been produced in 2010, with 16.62 million m³ (76.6%) being exported. Estimates for 2011 project an increase in production of 1 million m³ with a small decrease in exports as domestic markets are likely to improve.

North American forecasts

Across the Atlantic, US and Canadian softwood production is forecast to reach over 76 million m³, with Canadian mills accounting for 21.564 million m3 of the 23.673 million m3 of exports.

Canadian mills on the west coast of British Columbia are now exporting some 70% of production to Asia with eastern mills focused on the US.

US consumption is expected to be around 55 million m³ this year and a similar figure is anticipated for 2011.

These figures give an indication of performance within the industry, and in the case of the British market, illustrate the marked change in the largest of the wood markets.

In spite of the technical issues regarding currency and raw material costs, one agent commented that everything will be governed by supply and demand. As demand is uncertain, the level of production must be kept under control, otherwise the price structure could deteriorate.