Summary
• North Africa is becoming a key market for redwood.
• Buyers are likely to turn to Sweden for redwood during 2010.
• Canadians are looking to supply the Chinese market.
• UK timber merchants are buying more home-grown carcassing.
• Demand is expected to improve next year.
During 2009, softwood production was reduced on a global scale. From measures taken to cut back the number of shifts being worked, to the complete closure of sawmills, the whole industry felt the effects of the global recession and the need to balance supply with demand.
North America and Canada implemented the largest cuts in softwood volumes, mostly driven by lack of demand from the US, but also by the lack of raw material in some areas. One contact felt that if demand remained at current low levels, then harvesting operations could be cut back to a point where the mills still operating would find themselves short of logs.
In northern Europe, most of the major supplying countries also cut production for much the same reasons. In spite of the fall in demand for softwood, there were still log shortages in some regions but, on top of that, shippers needed to control supply to avoid gluts in any specifications.
Figures shown in the table (below) indicate levels of sawn softwood by the exporting country. The Swedish statistics show that this year’s exports are estimated to rise slightly by almost 1% against 2008, whereas Canadian exports are expected to have fallen by over 24%.
According to figures produced by the Canadian Forest Service, exports of sawn softwood to the European Union are only estimated to reach around 200,000m³ in 2009 (2008: 355,000m³). This is a surprisingly small figure given the size of the European market, but the Canadians have identified China as an area of huge potential growth. Current exports are mainly lower grades for concrete shuttering, but in Shanghai the authorities have recently adopted a new building code for wood structures that could spread across the country, creating a potential market for higher-grade structural wood products. This might take several years to come to fruition as China does not have the experience to convert to timber structures without more technical information and training. Softwood exports from British Columbia to China are predicted to reach around 1.5 billion board feet (3,539,605m³) for 2009.
During this year, Swedish shippers benefited from a drop in the value of the krona against the euro. This shift in currency was almost 15% when measured between the highs and lows recorded over the past 12 months. This gave the Swedes an edge over Finnish, Austrian and German producers, helping them to increase their share of exports in the eurozone.
Fourth-quarter shipments
Swedish shippers commented that there was a flurry of activity during August and September as UK importers, fearing shortages, sought to cover their needs for fourth quarter shipments. This was also reflected in other countries such as the Netherlands where stocks are currently arriving in readiness for 2010.
The Swedes also reported increasing success in exports to the north African market, which they say has become reliable and quality and brand conscious. During the first half of 2009, exports rose to the region by 45% against figures for the same period in 2008, and Swedish shippers anticipate further growth next year.
At the annual sawmillers’ conference (Trämarknaden) held in Karlstad on November 18-19 presentations confirmed a shift in export patterns citing north Africa as a key market for redwood. According to reports given, the region that includes Morocco, Tunisia and Algeria, now takes 43% of Swedish redwood exports, and according to the meeting it also imports around 56% of Finnish volume.
The Finnish sawmill industry has cut softwood production by more than 30% since 2006, and importers have felt the effects across Continental Europe. The reduction in redwood export volumes has been a matter of particular concern to UK buyers, who traditionally relied on the longer specifications produced by the Finnish mills that were harder to obtain from Swedish producers.
Recent announcements of curtailments by some of the large Finnish forest products groups have added further worries for 2010, as production is forecast to drop by at least a further 870,000m³. In spite of a shortage of redwood, and a weakening in the value of sterling against the euro, some of the larger exporters continued selling into the UK without adjusting for exchange rates, which, according to one agent, was either a way to try to buy business or to move timber at a loss for no reason given the general firming of prices.
Russian supply
While Finnish stocks are becoming more difficult to obtain, there has been a reduction in the number of Russian redwood shipments to the UK. This is due to the closure of a number of distribution terminals during the year, logistical difficulties and reducing production in the northern region of Archangel.
Given the supply situation in both Finland and Russia, buyers are likely to turn to Sweden for a higher percentage of redwood during 2010.
Taking an overall view of the current softwood market, supply and demand appear to be in balance. Demand has weakened since October, and likewise production has become tighter in both pine and spruce. As one shipper described the situation, the scales are so evenly balanced “it would only take a feather to tip them either way, but which way remains uncertain”.
Looking forward to 2010, opinions are divided as to how the market will be driven. A weight of consensus is leaning towards a supply-driven market, with log shortages and reduced capacity being the main factors. There are some traders who believe that the whitewood mills could still oversupply if price levels rise too far.
In the UK, sawn softwood imports have dramatically reduced over the past two years, from over 7.9 million m³ in 2007 to an estimated 4.7 million m³ for 2009, a difference of around 40%.
In a bid to remain competitive, UK timber merchants have been switching some of their volumes from imported carcassing to home-grown. The main reason for doing this has been to avoid the impact of sterling’s slide against both the euro and Swedish krona. Several contacts have said they are currently saving around £20/m³, although supplies are more limited in specification and grade.
British sawmillers are fully aware of the price advantage they have at the moment, but they face increased log prices for next year, and are likely to ask customers for a higher price in the first quarter for C16 spruce.
On the ground, UK traders are generally quiet, and there is a common feeling that Christmas has come early. However, some merchants are receiving increasing numbers of enquiries for the new year from both the housebuilding and industrial construction sectors. This would indicate that building activity is likely to improve next year, but when these enquiries will turn to firm orders is unknown at this time.
Europe’s stocks
In terms of overall volumes, agents are of the opinion that European importers may be under-bought, and stock levels are on the low side. If this is the case, it will please buyers in the short term who are hoping for shortages and rising prices to help guarantee that they will get a reasonable return on their stock. In the longer term, it means that they will struggle to cover their requirements, but confidence is still lacking throughout the European market place, and this is creating a mood of extreme caution.
Although it is likely that there will be shortages in whitewood and severe shortages in redwood, nobody is prepared to ramp up their stock level just in case some producers change direction and turn the tap back on.
In the UK, demand is expected to improve during 2010, but by how much, and at what point still remains an uncertainty. Until events begin to unfold, everyone will continue to play their cards close to their chest.
