According to one international hardwood trader, discussion about the health of the UK market wasn’t high on the menu at the London Hardwood Club luncheon in January. They took that as a good sign.
“When the hardwood market’s down, that’s all we seem to talk about,” they said. “When it’s OK to good, we discuss other things!” In terms of demand, the consensus in the sector seems to support this theory. Overall, 2017 was reported as a good year. In fact, some companies enjoyed record activity in certain areas, with one importer-distributor describing sapele sales as “off the graph”.
Earlier in the year, the post-referendum slide of the pound against the euro and dollar wasn’t causing undue concern either. Customers were reported to “accept that we’re all in this together” and to be tolerating price rises.
It’s agreed, too, that market fundamentals remain robust. There’s confidence in the building sector, with the Construction Products Association forecasting a further 2% and 5% annual growth in private and public housing starts respectively for the next two years. And while Chancellor Hammond’s promised £44bn housebuilding support package came slightly unravelled under scrutiny, hardwood businesses believe it can only help, boosting RMI as well as new build.
The sector’s joinery customers are consequently reported to be looking at healthy order books, with door and stair makers especially busy.
Market challenges are also recognised, however. While one importer described January as brisk, and others were on budget, a slowdown from November was reported by several. One experienced “the quietest December for a while”.
One factor involved was customers taking long seasonal breaks. More worrying, said an importer, was the amount of “excess timber floating around and resulting order chasing”.
“The combination of people buying ambitiously earlier, banking on continuing rising demand and falling sterling, resulted in higher inventories than they would have liked and pressure to sell,” said one importer distributor.
“We’ve seen some silly offers on big volumes and customers capitalising. If you can’t supply precisely what they want, they go elsewhere.”
The recovery of the pound against the dollar exacerbated the situation, leaving some with “unexpectedly costly stocks they were keen to offload”.
“It’s not time for alarm bells, but I think we’ll see more caution in the trade as these factors work through the system,” said an importer.
Tight margins are another current topic. “Margin percentages are down due to various factors, not just some selling at cost to shift stocks,” said an importer-distributor.
“There are firming supply prices, rising costs, customer resistance to currency-induced inflation starting to bite, and arrival of new entrants in the business looking for market share. More pack business is also being done, leading some customers to expect to pay little more for turn stock.”
The other issue is supply, with constraints on a range of sources and species combining with rising global demand. In fact one importer said, “2018 will be increasingly about accessing the timber”.
In terms of species, sapele remains the UK’s tropical front-runner.
“Despite demand, though, it’s competitive,” said an importer. “Sapele has been dumbed down and it’s very hard to get the sales price it warrants, while supply price is firm.
Companies with UK kilning are at an advantage as they can pick up air-dried at a good rate and better availability.”
Some importers still see framire/idigbo fading from the UK market, with few suppliers able to satisfy EUTR due diligence requirements.
But one importer-distributor said sound sources could be found. “Framire still fills a joinery niche at a lower cost than sapele and we’ve been able to get the legality assurance we need.”
Iroko earlier in 2017 was reported to be “like hen’s teeth” because of lower output from the forest. “There’s also strong demand, particularly for FSC, and prices have risen accordingly,” said an importer.
Adding to issues with African timber generally was a reported increase in congestion at the Cameroon port of Douala, thanks to a backlog of shipments after bad weather coming on top of its continuing inadequate infrastructure and reduced vessel load factors because of lack of dredging.
South-east Asian supply is reported tighter too because of demand and a protracted rainy season. Consequently Malaysian meranti prices rose 9-12% in the last quarter and Indonesian bangkirai 9-17% from September to December, with lead times out to four to five months.
Continuing NGO campaigning on Myanmar teak and EUTR Competent Authority action against some importers, meanwhile, are causing frustration in parts of the trade. “They’re making real efforts to meet legality requirements and that should be recognised,” said a Europe-based supplier.
“It seems NGOs won’t be satisfied until they’ve driven all tropical hardwood-using industries out of Europe, with our world leading boatbuilders the latest target.”
Turning to South America, the NGO focus on ipe legality assurance has led some to steer clear. But other importers maintain chain of custody issues have been addressed by producers and the Brazilian authorities and that the species still has a place on the UK market, notably as top end decking.
“We scrutinise sources rigorously and have faith in Brazil’s tracking system and our supply chain,” said a trader.
Among temperate species, European oak supply remains tight, with Croatia’s block on log and green lumber exports, ostensibly to combat oak lace beetle infestation, continuing to be a factor. Strong demand across Europe, notably from resurgent construction, has also impacted availability and pushed up prices 7-8% over the last quarter, with one importer expecting more to come as a result of Romania’s 30% minimum wage rise. Despite this, however, the species is still reported to be taking market share from American white. “It’s down to specification, accessibility and order turnaround,” said an importer.
The position of US white oak itself is described as “fluid”. One importer reported “taking a hit” on it last year, having bought when the pound was weaker against the dollar, then seen prices slip 7% – a fall compounded by the recent strengthening of sterling.
Another importer-distributor, however, thought supply could tighten as a result of voracious Chinese purchasing – the “single most important factor in US mills’ thinking”.
“They pay cash and now take all grades and growing volumes of logs,” they said. “They’re definitely one reason we’re already having to look harder for face and better white oak. Thicker material is also less available.”
Meanwhile, US walnut demand is steady and prices firm, with exporters also “upping their game in meeting specific quality requirements”, while tulipwood is described as “very healthy”, maple volumes reasonable, and cherry static.
American ash availability has continued to tighten because of emerald borer infestation, but traders say there’s still no significant migration to “shorter, narrower” European ash. US red oak is still a hard sell in the UK.
However, it’s hoped massive use by architects Foster + Partners in the new European headquarters of business data giant Bloomberg might open specifiers’ eyes to its potential. It features 400,000ft2 of red oak flooring, plus tens of thousands more as cladding and glulam walls.
Lesser-known species
The UK market also still seems largely resistant to lesser-known species, notably tropical, but some importers report signs of less conservative attitudes here too.
“We sold 56 different varieties in the UK last year,” said an international importer trader.
“And we are seeing more customers selecting on specification before species.” The hardwood market is also reported to be increasingly receptive to further processed, treated and modified products. An international trader, for instance, has widened their thermo-treated timber range to include US red oak, ash, ayous and fraké. The volume and range of grandis products, both solid and engineered, is also growing, with one importer just introducing cladding, another sawn and engineered products.
A couple of companies said they were exploring entrées into wood composites too, and notably modified timber.
“We’re running into modified increasingly in the market,” said one. “Accoya, especially, is becoming a staple.”
Legality-assured EU FLEGT-licensed timber from Indonesia, notably bangkirai decking, is also becoming more visible, albeit slowly.
This has led to some concern it may undercut and displace certified sustainable material, although others see only benefits.
“The trade should really get behind the EU FLEGT VPA initiative,” said an agent. “It underlines our commitment against illegal timber and has major positives for supplier countries. Indonesian licensed products may not be such a big deal for UK hardwood importers, but if other suppliers, such as Cameroon, get to FLEGT licensing stage, the impact could be significant.”
FLEGT-licensed timber’s exemption from further due diligence should also become more of a factor as EUTR enforcement gets tougher, said an importer.
“As the EUTR Competent Authority Regulatory Delivery gains in experience and knowledge, their capacity to detect and prosecute breaches will grow,” they said. “I think we’ll see this in 2018.”
Looking forward more broadly, there is some concern about the fallout from the collapse of Carillion. However, forecasts are that, while the market will remain competitive, and barring sudden shocks in exchange rates, healthy UK demand and excess stocks “washing through the system” should bring some relief on margins.
However, given rising international consumption and sourcing issues the key factor to monitor, importers reiterate, will be supply. “It will be all about maintaining good supplier relationships to get the timber you want when you want it,” said an importer distributor.
