• Business between the Baltic states and the UK remains steady.
• Baltic shippers are expecting an upturn in demand from north Africa.
• Exports to Japan have risen.
• Estonia has been increasing its exports of value added products.
• Sawmills in the region are growing in confidence and investing in increased capacity.

Baltic timber exporters report a cautious approach from buyers across all markets, but business is still holding firm and importers are making forward commitments. Stock levels in the merchants yards are being kept tight, or trimmed if levels have crept too high over the last few months, so buyers are only importing the volumes they need.

In the Baltic states, mills have been increasing their presence in the markets, and contacts in Latvia made the comment that business with the UK remains steady although volumes are still fairly conservative. Prices have been easing upwards, but have only covered currency corrections as sterling has continued to bump along the bottom after weakening against the euro earlier in the year.

Log prices in Latvia are relatively stable, although higher than in 2010, and supplies appear to be adequate for the sawmills to cut against orders. Some mills have been forced to switch to redwood for carcassing, but unless the goods are pre-treated they are finding resistance from UK importers due to worries over condition and quality.

Sawmills with a regular customer base are reaping the benefits of longer-term co-operation with their buyers, and are finding it easier to schedule production against orders for regular repeat business.

For those mills that have been deploying a more speculative path by switching between different markets, sales and production are becoming more difficult to achieve. This is because demand from open market buyers is weak, and there are few enquiries currently circulating for significant volumes of softwood.

In terms of price, one Latvian timber group described the market as a yoyo, as some sawmills eased prices down in June and July, only to put them back up for August and September. They said that very little in the way of long-term contracts were being placed, and business was generally quiet across European markets, north Africa and the eastern Mediterranean. Nobody in the trade believes that prices will rise significantly in the foreseeable future.

But with Ramadan finishing on August 29, shippers are expecting a lift in demand from the markets of north Africa, on the back of a surge in construction. Current inventories are reported to be on the low side in countries such as Algeria, and volumes at the port of Alexandria have been depleted over the summer months.

Like many producing regions, the Baltic states expected a rising softwood market following the earthquake and tsunami that hit the north-west of Japan in March.

Exports to Japan

Exports from the Baltic states into Japan grew during the first five months by just over 8% to reach 65,696m³, with Latvia leading the way at 54,198m³. However, exports from Finland and Sweden set the pace with a combined volume of 685,346m³, a 43.5% increase from 477,597m³ recorded for the same period in 2010 (figures released by the Japan Wood-Products Information and Research Centre).

Due to the nature of the clean-up operation, which is taking longer than expected, Japanese importers are not expecting the main demand for reconstruction to kick in until next year, but when it comes they believe it will absorb significant volumes.

In the value-added markets, specialist manufacturers in Estonia have been steadily increasing the export of wooden buildings, ranging from garden rooms to multiple units for offices and schoolrooms. During the first half of the year, the export value increased over 40% compared to the same time last year at just under €90m. The largest market was Norway, which accounted for almost 25% of exports.

Faced with high levels of inflation, the Baltic region pursued a period of austerity by cutting costs and concentrating on exports. Following an 18% downturn in GDP during 2008-2009, financial analysts are now reporting a brisk trend for economic growth this year. Confidence in the Baltic timber industry is also growing, and several shippers are increasing capacity and modernising operations.

In Latvia for example, Kurekss as part of a development plan has invested in sawmilling equipment that should increase capacity by more than 10% to 200,000m³ by the end of this year. The log handling machinery has been designed to take larger diameter sawlogs of around 550mm. This will give the mill’s carcassing production greater flexibility and a wider specification.

The Norvik group has completed investing in a new planing line at its Latvian operation Byko Lat at Valmiera to increase capacity from 120,000m³ to 160,000m³. The new line became operational in July, and Norvik also plans an expansion at its sawmill in Laesti, Estonia.

As part of the same group, Vika Wood started a refurbishment programme worth €13m last year, which has the ability to double the efficiency of production. The investment will cover sorting lines, sawing equipment, and kilns, and should be completed by next summer. The mill currently produces 280,000m³ made up of whitewood for carcassing and redwood for joinery and mouldings.

Looking to the future, one contact stressed the importance of forest accreditation and said that the number of certified stands is increasing. At a meeting in Riga earlier this year, evidence was put forward that Latvia’s forest industry is sustainable, and replanted stands had now reached maturity. With over 600 million m³ of growing timber, there is enough raw material to feed industry as long as extraction remains under proper control.