European sawmills continue to hold an unwavering confidence that all the volume they produce through this year will sell into one market or another, irrespective of a blip in UK demand, which started to take hold in early June and lasted until mid-July.

While the UK is still a favoured market, it isn’t the only one that the sawmills have to rely on, primarily because softwood availability in both logs and processed material is generally trailing behind global consumption, and longer-term projections of supply/demand indicate that demand is set to stay ahead.

As a result of what continues to be a supply-driven market, prices are both firm and incremental, irrespective of currency movements. A number of Nordic mills have advised buyers that they plan to extend their holiday shutdowns to a full three to four weeks, so the trade is likely to experience noticeable shortages, which will start biting in early August. For British buyers, sterling weakened against the euro in July to €1.12/£1 from a higher level in June of around €1.145, adding more than 2% to softwood costs, with a similar adjustment against the Swedish kronor.

In addition to the tight market conditions, stringent regulations were imposed on logging activities in many areas of Swedish forests due to ultra-dry conditions, which posed a serious fire risk. These restrictions, in a period of record levels of dry weather not seen for well over a hundred years, stopped supplies to the mills and added to production curtailments. Unfortunately, in spite of the restrictions, a series of large-scale fires broke out in many regions, which are posing a huge threat to forest stands in both the north and south.

The fires turned into a national threat, leading the Swedish government to request emergency assistance from the EU. As this report was being written, contacts on the ground in Latvia were unaware of logging restrictions being put in place in the Baltic forests, but if hot weather persisted they predicted that the state would intervene by the end of July.

In terms of availability, comments by some merchants revealed that stock gaps were already appearing in UK carcassing specifications as early as the first week in July, especially for 4.2m and 5.4m lengths in several joist size cross-sections. Enquiries have continued circulating for these lengths across the supply chain for volumes ranging from mixed truck loads to large volumes for prompt shipment.

Swedish producers of strength-graded softwood have enjoyed a very strong market since the start of the year, and they remain confident that the favourable market conditions will continue beyond the year-end. Even the domestic market has been consistently buoyant.

The Swedes currently lead the market on price, but Baltic producers are following close on their heels spurred on by rising log costs.

As a result, Latvian state and private forestry interests are setting the bar ever higher by keeping a close eye on the end-user markets and ratcheting up log costs every time the sawmills manage to pass on the last set of increases.

While UK importers and distributors still prefer whitewood supplies, sawmills in Sweden and the Baltics can only process the fibre they get from the log supply, and percentages of redwood are still high. In fact, both Latvian and south Swedish mills are still finding it easier to fully meet customers’ specifications from a higher level of pine, with spruce availability continually reducing.

In terms of supply, Russia continues to have the lowest share of the UK market out of the main northern sawmilling countries, mainly supplying the quality grades of unsorted through to 5th or ‘C’. In contrast to the UK trend, Russia’s softwood exports to other markets are 5% higher than the same period last year. Russia’s exports to China, its largest export market, account for well over half of its total export volume, whereas Sweden remains by far the main source of softwood supply to the UK, shipping both structural and appearance assessed qualities and dominating over 45% of Britain’s total import market.

In the joinery grades, Finnish mills have eased back on production and inventories fell during the first quarter. In 2017 the main shortages in the UK centered on C24 material, but currently unsorted, fifth, sixth and especially pallet wood are all in short supply.

Pallet wood is also in short supply from the UK’s domestic producers, and, as with many other countries, well-meant subsidies poured into biomass for fuel has ripped away smaller dimension logs from the sawmills’ grasp, forcing up prices and reducing fibre supply for the production of narrow boards. In some cases, mills are being forced to ration supply and are even turning down new business to keep regular customers supplied.

One of the most influential global price drivers is the US market, which has continued rising sharply through the year and reached record price levels in both spot and futures trading accounts. While the trend cooled during June, the residual trading prices stayed at over 30% higher than the same period in 2017. Between mid-June to mid-July, levels of southern yellow pine, the main US kiln dried construction specie, fell by approximately US$80 per thousand board feet (mbf) for No 2 + better in narrow widths, and while Canadian SPF also weakened on both the eastern and western seaboards, in each case prices remained well ahead of the levels recorded in 2017, with western SPF still exceeding 40% up.

From record highs in late May and early June, the US market has been correcting itself in both stress-rated softwood and construction grade OSB and plywood, but the US market has remained a success for many European softwood exporters, and there are still substantial contracts still to be shipped from Austria, Germany and Sweden. Between the US and China, there is enough demand to consume any excess production that might inadvertently enter the market. In the event of relying too heavily on China for sales, prices may not be that attractive in comparison to other markets.

Despite continuous price increases in the market, not everyone is a winner. Certainly mills in Sweden have enjoyed a favourable market, but log prices in Finland and the Baltic region have forced the mills’ backs against the wall and kept margins tight. The financing of raw material alone has made it more difficult for them just to stand still on production volume, and although the increased value through higher price has underpinned turnover to compensate for less timber sold, the question they are asking themselves is, are today’s prices firm enough to produce an adequate bottom line?