Summary
• Demand, which had been buoyant, has suddenly dropped.
• Supply constraints abroad have had an impact on the domestic supply chain.
• Woodfuel has become a reality, but there are teething problems.
• Efforts are being made to mobilise the private forestry resource.

The “cautious optimism” of the domestic supply chain last year has been transformed into a greater confidence as round timber prices have been maintained or increased.

There is tangible buoyancy in response to growing demand at all levels: one forest manager reported having been phoned by a sawmiller seeking timber – something he had not experienced for years. But things change rapidly, and in the last few weeks UK sawmills have reported much reduced demand, prompting some of them to substantially reduce production capacity.

Precautionary buying by UK customers earlier in the year, as a result of stock shortages, has now resulted in high landed stocks as the supply chain has returned to normal and selling prices are now under pressure.

Set within the global context, price improvements to date have been due to increased demand from emerging economies, with constraints on supply from overseas, such as last year’s mild Baltic winter hampering harvesting and the Russian levy on round timber exports hitting Finland and the Baltics. Oil prices continue to rise, impacting on production costs and renewable energy developments and climate change mitigation remains high on the international agenda. Recent German and Austrian sawmilling investment (new capacity will shortly exceed the entire UK’s output) will lead to intensified competition, already felt here this year.

There is also a significant shift in resource and processing from Scandinavia. As Canada faces various pressures, such as the high Canadian dollar and the US housing market slump, combined with a marked slowdown in Japan, it is looking increasingly to the UK market, although little impact has yet been felt.

The price of sawn timber is falling a little and it is thought that it may be about 18 months before it rises again.

Growth forecast

In the UK the chancellor expects growth to be lower than forecast, but timber frame continues to increase market share of new build, especially in England. In 2006, timber and timber products imports fell, while UK timber exports have been rising. Domestic hardwood deliveries fell by 26% in 2006 compared with 2005, which had been a good year compared with 2004. However, softwood deliveries have been rising slowly but steadily for several years. Forestry Commission sales to March this year show price increases across the spectrum of around 10% compared with 2006, but private sector reports indicate increases of up to 30% during 2007.

However, as mentioned, in the last two months, there has been a marked quietening of the sawn timber market in the UK and some weakening of prices, perhaps due to stock-building by some users and reduced outdoor/DIY activity in the wet summer.

In response to concerns expressed, ConFor has been involved, with others, in investigating the supply and demand balance, firstly as a partner in a study of fibre supply and demand in Scotland and north England, then attending a Wales Forest Business Partnership meeting and, more recently, running two workshops in England.

The conclusion of the first study was that if all planned developments went ahead there would probably be a significant shortfall of fibre supply. However, the Forscot mega-mill plans at Invergordon seem quiet, although other developments, such as Balcas’s pelleting and combined heat and power plant, have appeared or are under construction.

The Wales meeting was to address supply shortages largely due to FC Wales’s reduced production of around 20%. The private sector is not yet responding sufficiently and efforts are being made to encourage increased supply from the region.

Production barriers

Similarly, the slow or inadequate response to price rises in England led ConFor to examine the barriers and seek solutions, through workshops, supported by FC England and UKFPA, in Gloucestershire and Yorkshire in September. A questionnaire to a range of hardwood and softwood users/processors formed a basis for discussion and half of respondents reported supply difficulties. The proposed actions will shortly be posted on the ConFor website (www.confor.org.uk), alongside some presentations and a report of the meetings.

Many of the barriers to production identified apply across the UK, including:
• regulation;
• insufficient skills and equipment;
• loss of workforce/recruitment;
• insufficient woodland infrastructure investment and resource decline;
• insufficient market information;
• insufficient continuity and confidence at all levels;
• inadequate communication and resource information;
• and owner objectives (which aren’t always truly commercial).

At the Gloucestershire event, Oliver Combe of BSW presented a dramatic picture of threats and opportunities for the softwood industry. There are opportunities, he said, to increase market share; increase volumes into higher value markets; to return to price levels of 10 years ago; and to increase the supply from private woodlands in Wales and England.

However, he added that to meet increased demand, supply would have to increase and, he noted, that 30% of mills are operating at less than full capacity due to supply problems; 50% of mills are experiencing supply problems; and 70% of mills have increased prices recently.

Graham Taylor, of Pryor & Rickett Silviculture, demonstrated timber prices returning almost to 1995 levels. The challenge is to encourage growers to re-engage, but they may be less grant-led and more market driven.

There are various FC initiatives across Britain to encourage woodfuel production and, with Rural Development Plan funds expected within a few months, training and other support programmes should assist adjustments. The revitalised England Forest Industries Partnership should have a role to play here.

Hardwood prices are increasingly attractive for most species. Following a Continental glut, supplies are more scarce and buyers struggling to find sufficient volumes of high grade material at home are concerned about continuity and quality of supply. Bureaucracy, timing, weather, shooting constraints and perceptions of a weak market deter the occasional producer. Mr Taylor also blamed forestry policy and the legislative framework.

Following the closure last year of St Regis Paper plant near Chepstow (the only major market for low grade hardwood in much of England and Wales), other markets, such as traditional firewood and woodfuel, have been compensating to some extent for the loss.

Wood fuel

Woodfuel has become a reality for many, but there are teething problems leaving many growers and customers frustrated.

The award-winning Ignite training programme has been well taken up and is raising awareness and standards and new businesses and co-operative supply groups are evolving.

Woodfuel markets are desperately needed for some low grade material, but they also take previously unsaleable material, reclaimed wood, arboricultural arisings and some sawmill products.

However, panelboard manufacturers’ concerns about supplies are recognised and efforts are being made to mobilise the existing forest resource. For example, in England, FC aims to bring two million additional tonnes of wood forward from the private sector. Others are concerned that local shortages of appropriate material cause higher grades (even sawlogs) to be burned. Most agree that the focus should be on local production of low grade material for community-scale wood-fired plants.

In conclusion, a period of rapid change has followed 10 years of forestry infrastructure erosion and damaged grower confidence. As state timber production declines and demand rises, the private sector has great opportunities, but must act quickly, innovatively and efficiently with timber users to exploit these.

There is a new urgency and determination to improve confidence, continuity and communications throughout the supply chain. ConFor and others are seeking to encourage a sound, sustainable and competitive response, bringing woodlands back into management and production.

It has been a remarkable year for timber processors, with long-overdue increased returns, but with uncertainties ahead. Politicians and decision-makers are increasingly aware of the many benefits of trees and timber, but awareness needs to be translated into a drive to increase productive planting and use of sustainable timber.

This article was written with assistance from UKFPA.