• Decking has been hit hard by the summer’s floods.
• Construction delays have cooled demand for carcassing.
• Shipments from eastern Canada have slowed after many buyers over-committed themselves.
• The US housing slowdown means European sawmills are looking to the UK.
• Nordic shippers are returning to shorter buying cycles.

Over the last few years, the weather has become a critical factor in determining the fate of the softwood market. It has affected logging by either being too wet to support extraction machinery, or too cold for loggers and mills to work. On top of that, a number of storms have caused major damage to the forests across northern Europe smashing down millions of cubic metres.

This summer in the UK, the weather has washed away merchants’ hopes of a buoyant trade, leaving a trail of havoc as flash floods caused the closure of some major motorways, and inflicted widespread damage to domestic and business property.

One of the markets hardest hit by the bad weather was decking where, after a good start through the spring, sales fell dramatically through July and August as wet conditions prevented fixing crews from working on site. This resulted in many projects falling behind, and some traders are concerned that many will be postponed until next year. In a bid to mitigate the situation, merchants have been delaying call-offs from their suppliers, and some have lowered prices in an attempt to attract customers who are ringing around for prices.

In the wider market, building and construction projects have been seriously delayed, leading to many projects falling behind. This has cooled demand for carcassing considerably and, in contrast to last year’s shortages, there are now surplus stocks leaving some importers in an over-stocked position.

Many traders are now pinning their hopes on a dry September and October to generate a surge in demand, and there are early signs that sales are beginning to strengthen, although the situation remains tentative.

Shipments from eastern Canada have slowed dramatically after many buyers found themselves over-committed. Stuck with imbalanced specifications, they withdrew from continuing with further contracts. There were concerns that unsold consignment stocks could further weaken the market, but fortunately those goods that were shipped have been absorbed into the market, and it is hoped that no further shipments will take place unless the goods are sold. Where eastern Canadian mills have geared up for the UK and the Continent, they are now keeping a tighter control on volumes to avoid undermining the market any further. There is also a greater accent on higher quality and condition to avoid wane and ingrown bark tissue.

Worsening US economy

As the economic situation in the US housing market worsens, with analysts at Fitch Ratings now predicting housing starts will be 28% lower than last year at 1.3 million, north European sawmills have started looking to place more production into other markets. This has resulted in both German and Austrian exporters offering substantial volumes of whitewood to the UK.

After the unprecedented demand and price increase seen last year, many German mills invested in increased production and now find that they have surplus volumes on their hands. In the first quarter of 2007, German production rose by around 10% against the previous year, but internal consumption has now fallen and their main export markets have weakened.

With competition currently running high in an indifferent market, prices have dropped from the peak levels seen earlier in the year, but even so, new mills are approaching importers on a regular basis. Although German and Austrian producers are known for good quality, there are reports of low-grade batches from wind-thrown logs working their way through the system.

Baltic sawmills have also trimmed prices despite suffering shortages in raw material and increased log prices. The price reductions have been attributed to a fall in live enquiries for sawnwood over the past two to three months. The improvement in global supply has provided importers with more choice, and the paucity of offers from many Baltic shippers over the last year or so has led many buyers to pass them over when looking for new volumes.

To underline the point, one of the most noticeable changes in the softwood trade is the wide variety of brands and origins of softwood currently seen in importers’ yards and on the quayside.

In Sweden, the whitewood market has weakened slightly, and there is speculation that there might be an increased volume available for export in the last quarter. But the picture is far from clear as there are few stock lists or offers in circulation, and many basic enquiries are still awaiting replies. During the first quarter of the year, the volume of UK whitewood imports from Sweden remained stable whereas the price level rose by over 25%. The Swedish domestic market still remains firm, and in the short term, whitewood mills believe that it could absorb production that could not be sold on the export markets.

Record Swedish profits

Like the German mills, Swedish producers enjoyed record profits and production volumes last year, and many are currently upgrading their machinery. Some mills are still committed to producing contract volumes that fell behind earlier in the year. After a period of such success, there is no reason that they should be in a hurry to start churning out high volumes of fibre at a low price to force on the market. Consideration should also be given to the effects of the storms on the forest stands, because at some point there will be a shortage of spruce logs while the overall growth rate is allowed to recover.

In the redwood market, supplies are still tight in certain specifications, but general inventory levels have risen as importers increase their commitments earlier in the year in the wake of last year’s shortages. The situation is similar to that of carcassing, but the volumes involved are much smaller.

Nordic shippers report a return to shorter buying cycles, and forward order books have fallen back, with very few UK buyers willing to commit beyond October. Apart from some discounts being offered against landed stock, redwood prices are set to remain firm, but it is unlikely there will be any further increases in the foreseeable future. In the first quarter, the volume of redwood imports from Sweden into the UK fell by around -12% and around -4% from Finland while prices increased by 33% and 31% respectively

Russian redwood prices have plateaued after a period of steady rises during the first six months of the year, when they exceeded Scandinavian levels for the first time. While the northern mills in Archangel have been producing higher volumes of whitewood, (as is customary in the summer months), shortages in landed redwood specifications have been developing, particularly in middle cut 50mm.

New arrivals are expected during September and onwards, and it is anticipated that specifications will then start to balance out. The Russian sawmilling industry is going through a period of acquisition and consolidation, with more independent mills being absorbed into larger combines, a recent example being the sale of Medveghegdorsk to the same group as Segezha. This continuing trend has created uncertainties among importers about the future sales and marketing strategies of the new groups, and how they will affect the future supply chain.

Dented confidence

Back in the UK, uncertainties over mortgage rates, and the sudden spate of loan offers being withdrawn from house-buyers by international-backed lenders, has dented confidence in the housing market. While the traditional high street building societies are largely free from the finance problems experienced in the US, the latest round of increased interest rates has raised the prospect of negative equity among new entrants to the housing market.

But on the basis that there is still an acute shortage of housing in Britain, the trade is hoping that construction will pick up through the autumn and demand for softwood will strengthen enough to stabilise the market.

This, of course, will depend on the weather.