From TTJ’s supplement on sawmilling (TTJ February 23), it is clear that UK sawmillers are characterised by entrepreneurial spirit and dogged determination.

Despite a long period of low margins, they have continued to invest their faith – and lots of their money – in new technology and extra capacity to handle the increasing supply of UK logs. When the mills turn on the taps to use all that extra wood they’ll need to find markets not only for the sawn goods but also for the co-products (chips and sawdust).

The fact that many European countries apparently face an ‘acute lack of logs’ may assist UK mills to expand sales through import substitution, which is seen as a key requirement for growth. At the moment, though, things still look pretty dire, with no improvement in the market over the winter months and following a difficult period during last year.

Demand for sawn softwood has remained relatively static, with competition from lower priced imports from Sweden and the Baltic states still a major problem. Carcassing prices have been fairly flat over the past 12 months and, although modest price increases have been seen recently, these are more than offset by reductions for falling boards and for co-products – the latter down by 15-20% during the past year.

Recent weather will both help and hinder: while the high winds are expected to lift demand for fencing as repair work is carried out, the heavy rains are delaying this activity. According to reports presented by the UK Forest Products Association at the February meeting of the Forestry Commission Advisory Panel – Supply and Demand sub-committee, there are also hopes of improved demand from the agricultural sector following the decline as a result of foot and mouth disease.

However, there are serious concerns about the markets for co-products. Panel products and paper manufacturers have their own set of worries. The former still face fierce competition from lower priced imports – especially MDF and OSB – while the paper sector has seen falling demand for various product types. This puts manufacturers under pressure to reduce stock levels, while increased use of recycled fibre further reduces demand for co-products.

Niche markets

For hardwood mills, trading conditions have been reasonably good, although wet weather is hampering felling operations. UK merchants continue to balance their stocks with imports – including competitively priced European wind-blow – and sawmillers are tending to sell into niche markets where reasonable prices can be obtained. Poor demand for lower grade material is still a problem.

Worryingly, a further fall is expected in the number of traditional hardwood sawmills in the UK.

Forest Enterprise says that the trend in timber prices began to turn downwards around the end of 2001, following a period of relative stability since October 1998. The lack of profitability within the wood based panels sector has continued to drive small roundwood and sawmill co-product prices downwards; and a ‘significant increase’ in the quantity of recycled wood used in chipboard manufacture has reduced demand for chipwood. The establishment of a pulpwood export market at the end of 2001 provided ‘a welcome alternative at just the right time’.

Private growers have been taking stock of their lot over the past year. In fact, 2001 started fairly well with a surge in demand as a result of a perceived reduction in output from Forest Enterprise on top of the lower volumes from the private sector. Standing timber parcels sold particularly well and many owners took the opportunity to negotiate special supply contracts with chipboard factories, which revived some thinning operations.

However, conditions changed quickly as the effects of foot and mouth disease took hold. There were regional increases in demand for roundwood needed for pyres, but sales of agricultural fencing materials fell. Continued tough conditions in the pallet sector saw palletwood prices fall to around the level achieved for chipwood two or three years ago.

With trading difficulties across most sectors – particularly wood based panels – it became clear that price increases were unsustainable. In fact, prices fell as supplies increased and demand declined.

Cost review

In the wood based panels sector, with increased production in Europe putting prices under pressure and the strength of sterling encouraging imports and adversely affecting exports, UK processors have had to look at their costs. One has introduced a dry-weight purchasing system for small roundwood, which allows greater certainty over raw material costs – but the resulting price fluctuations are passed on to the growers.

As with sawmill co-products, recycled fibre continues to displace roundwood. One slightly positive note is the adoption by a number of processors of FSC certification, which has assisted certified woodland owners. The Nexfor plant at South Molton now only accepts roundwood sourced from such woodlands.

Paper manufacturers are carrying fairly high stocks of roundwood and restricting deliveries of sawmill co-products. The recent announcement that a major UK newsprint mill is to switch to 100% recycled fibre in two years’ time is a major blow to sawmills and growers alike. An alternative market for the co-products and roundwood is urgently required.

The proposed new market pulpmill being championed by the Scottish Forest Industries Cluster is taking on increasing significance, and the long heralded second paper machine at another mill will help. However, many growers will have to look to export markets for their small roundwood as a result of declining requirements for this material in the UK.

Growers welcomed the new capacity which came on stream last year in south Scotland – with the James Jones and Sons’ mill at Lockerbie and Forest Garden‘s mill for processing short length fencing logs. However, when balanced against the closure of four important sawmills in England and reduced activity at several others, the result is an overall fall in demand.

Reduced competition

Forest Enterprise (FE) says the mill closures in England reduced competition and resulted in longer haulage distances – both factors having a negative impact on prices. In addition, FE notes that the relatively small sawmills in England are prone to competition from European and Scottish competitors – and the overall picture is therefore fragile.

FE is currently on target for its production at UK level but says it is likely that demand in England and Wales will not be enough to allow planned production levels to be met.

External factors are still having a significant impact on the entire UK forest products industry – softwood, hardwood, panel products and paper and board sectors. The industry has reduced its costs in all operational areas and the only scope for further cuts would appear to be a reduction in stumpage values. Without this, the viability of the industry will be jeopardised further.

Reduced supply

From the growers’ perspective, the continued fall in prices for roundwood and sawlogs means prospects for thinning and felling remain uncertain. And with prices under pressure at a time when growers have increasing quantities to sell, there will inevitably be less supply as returns from the timber are balanced against the cost of restocking.