“Companies are paying money for their timber to go nowhere.”
That’s how one hardwood trader described the situation at the key West African export hub of Douala in Cameroon, where the silted up harbour and decrepit infrastructure have resulted in the backlog of timber becoming worse then ever.
Adding to exporters’ problems, besides their hardwood deteriorating dockside, they are also struggling to secure VAT refunds from the authorities. In fact this was one factor cited by Rougier Group for putting its African operations into protective administration in March.
And Douala and its impact on West African supply is just one of several adverse factors that have coincided to make the UK hardwood trade less bullish than six months ago. There are supply issues at other key sources, temperate and tropical, putting pressure on availability and price. At the same time the UK market is reported as increasingly hand-to-mouth and competitive.
“After a brisk first three quarters in 2017, business since has become more problematic,” said a trader. “Replacement prices are rising across the board due to multiple supply constraints and growing global demand.
There isn’t one source that needs the business at the moment. At the same time, customers want to pay less and buy increasingly little and often. It’s a bit of a dog fight.”
There seems little chance of West African logistics issues being resolved quickly. Cameroon’s new Chinese-bankrolled port at Kribi was reported operational in early March, but will take time to build capacity. There are also concerns about the trade impact of Rougier Africa’s problems and what sort of operation will emerge from its restructure.
“They’re big suppliers of kiln-dried (KD) and certain species, such as ayous,” said an importer. “They’ve also announced that their Cameroon operation SFID won’t be renewing its FSC certificate.”
There are understandably currently no signs of price weakness in any African hardwood species, with iroko and framire also hard to come by.
“The price premium for KD has also increased, with the differential with air-dried up €20/m3,” said an importer. “Global demand for KD is rising, and there are markets willing to pay more for it than Europe. This naturally puts buyers with kilns, who can take shipping dry, in a stronger position.”
Supply is also an issue in South-east Asia because of unexpectedly high log demand from Malaysian and Indonesian plywood makers, and the weather.
“It doesn’t seem to have stopped raining for two years, seriously affecting harvesting,” said a trader. “Prices of bangkirai decking subsequently are up 20% over the past six to 12 months, and meranti and keruing 8-10%.”
A cold wet winter in the US, notably the central Appalachians, is also reported to have impacted log supply to mills and hit output, with availability made tighter by buoyant domestic consumption.
According to UK importers, continuing voracious demand from Chinese buyers for US hardwood lumber and increasingly logs, for which a report on www.woodworking.network.com says they’re paying up to 50% more than “typical sawmill prices”, is also making America ever more a seller’s market.
Because of these various factors, one UK importer said they were paying 15-20% more now for four quarter US white oak than six months ago. Other species prices are also firm.
“Poplar is more stable, but US white oak, ash and walnut are all still creeping up weekly,” said another trader. “Cherry and maple are increasing more slowly, but while they’ve made a bit of a recovery, they’re still not big in the UK.”
The pound’s recent rise against the dollar has cushioned UK customers from US price inflation. “But if exchange rates change and global demand keeps growing, they could be facing significant rises,” said an importer.
Supply and price are also the overriding themes in the European hardwood – and notably oak – market. They were also a focus of the TTF’s European Oak Conference in London in mid-April, which attracted 120 delegates. Key issues, said speakers, included Chinese demand for European oak logs, with French sawmills particularly affected. At the same time, Croatia’s export restrictions on green oak lumber and logs, ostensibly to combat spread of oak lace beetle, are further affecting supply, as is Ukraine’s 10-year block on roundwood exports.
European Organisation of Sawmills secretary-general Silvia Melegari highlighted the pressure put on Europe’s mills by Chinese log demand. While European sawn oak exports to China had risen 34% in the last seven years, she said, log exports had risen 244%.
“In 2001, 63% of EU oak roundwood exports were to other EU countries,” she said. “Today, 50% go outside the EU, 42% to China.”
She did not draw a direct link, but added that 30% of French, Belgian and German sawmills had closed in the past decade.
Action on this raw material drain was now being taken, she said, with a coalition of industry bodies and MEPs pressing the European Economic and Social Committee to back measures to ensure a “sustainable supply of raw material to meet local [EU] industry needs”.
The conference also heard that the EU is challenging Ukraine’s log export ban as a breach of a free trade agreement, while Marijan Kavran, manager of the Croatian Wood Cluster, said his country’s export curbs could be lifted this summer.
In the meantime, say importers, European oak is reported increasing 5% in price every six months, with thinner 26-40mm sizes in especially tight supply.
European beech prices are more stable, but one agent/importer said it was a struggle to source 38 and 50mm door dimensions, and FSC-certified is also in short supply.
Importers said the UK market had been insulated from some supply issues by existing stock levels. This would change in the coming two quarters, but meanwhile some suppliers were reported selling at “unrealistic prices”, notably sapele, to shift inventory in what was generally agreed to be a more uncertain market.
Market place caution is not only leading to more just-in-time buying, it’s also increasing price rise resistance, leading, said one trader, to a “supply and demand side pricing disconnect”.
Customer nerves are put down to concerns over Brexit, the UK’s generally lacklustre economic performance and particularly construction slowdown.
While it’s not the sort of climate where customers risk going for anything radically new and departing from sapele, US white and European oak as their hardwood staples, traders did note some demand shifts.
One company saw their promotion of meranti paying off and it taking share from sapele. Another commented that, as European oak demand and prices rose, European ash was proving a popular substitute.
Two importer-distributors said their sales of sawn and engineered red grandis were also growing.
“It may currently be just 10% of our sapele volumes, but I can see that changing, even reversing in coming years,” said one.
Modified Accoya is also reported to be making ever-deeper market inroads and set for further growth, particularly as “the market becomes ever more risk averse on tropical timber”.
Given constraints in the European oak market and with its spectacular recent use in the new European headquarters of Bloomberg in London (see p30), the American Hardwood Export Council is targeting increased uptake of US red oak.
As part of its promotional campaign for the species it is now working on design projects with leading Polish furniture designer Tomek Rygalik and students at Oxford’s Rycotewood Furniture Centre.
Where importers are seeing little change, however, is in the market impact of ready legally-assured FLEGT-licensed Indonesian hardwood products.
“We haven’t had much customer response,” said one company. “I think one problem is the focus of promotion and communication on the FLEGT scheme rather than the products. Customers don’t buy a legality assurance scheme, they buy a door blank or bangkirai decking. If it happens to be licensed, that adds to the attraction, but it’s not the primary purchasing consideration.”
Looking forward, some importers thought better weather might boost hardwood demand. But the consensus is the market will remain competitive. “Every buying decision takes that bit longer to pin down,” said a trader. “It’s generally harder work than last year and a case of taking every opportunity.”
