“Unprecedented” is the word being used across the home-grown timber industries to describe the current crisis of rapidly rising prices and shortages of logs.
The escalation of the problem from Q4 2017 onwards has led many mills across the UK to cut back production, with concern filtering further down the supply chain about price and availability of timber products in 2018, from construction timber to fencing, pallet wood and sleepers.
However, the UK forest industry has mobilised and a crunch meeting in Edinburgh on February 5 attended by a 30-strong cross-industry delegation and Scottish cabinet secretary for rural economy and connectivity Fergus Ewing saw some prospects of help to ease the situation. Companies present included sawmillers and other processors, forest owner representatives and the Forestry Commission.
Confor chief executive Stuart Goodall said the industry had wanted to be open and honest about the serious situation and that action was required from the Scottish government to help.
Two key aims were to encourage people to bring raw material to market and for the industry to improve its understanding of the timber being harvested and where it is going.
The net result is the Scottish government will look to ease restrictions, with the objective of releasing more timber onto the market.
Easing Restrictions
Many factors have led to the current situation, but Mr Goodall highlighted regulations, including the UK Forestry Standard, the reference standard for forest management in the UK which sets out the requirements and conditions that must be met when felling trees.
He said inconsistency across regulations had resulted in some forest areas not able to be harvested. “In some areas it was being implemented appropriately and in some areas it was not,” said Mr Goodall.
“It’s clear there has not been a consistent interpretation of the restrictions across Scotland and people have been holding back and not harvesting, because it’s got to the situation where supply is tight.”
Contributing factors were the move towards mixed age forests rather than the current single age and achieving a balance with environmental benefits, as well as some long-term forest plans being rushed through to get approvals, he added.
Mr Goodall also referenced higher log exports and a possibility of under reporting of wood consumption by the biomass sector. The UK’s largest sawmillers, BSW Timber and James Jones & Sons, have both reduced production and are keen to see solutions.
BSW Timber chief executive Tony Hackney said the whole forest products industry across the UK was affected – including panel manufacturers and the pulp/paper sector – but most significantly in central Scotland.
Unprecedented Trend
Mr Hackney, an advocate for the Forestry Commission to fill the gap with emergency felling, said he had never seen a trend like this in the industry.
“My concern is there is definitely a rapidly emerging shortage of home-grown timber on the market,” he said. “There is quite a bloodbath going on in terms of getting supply.
“The statistics show the material is there in the forest, it’s just not coming to market.”
Mr Hackney referenced a 650,000 tonnes reduction in private sector felling between 2014 and 2016, according to national inventory statistics on removal and availability. “When you think the whole UK sawmilling industry’s sawn timber capacity is about 3.8 million m3, it’s a massive shortfall,” he said.
“Private sector standing timber sales prices are at levels we have never seen before. The mills in Scotland are all taking significant time out. I am not prepared to run the mills where we have low log stock and have to run them very inefficiently, so we have taken time out.”
Mr Hackney said average log prices had roughly doubled from the mid-£30s/m3 being paid in 2008-09, with sawn timber selling prices increasing from about £150/m3 then to £180/m3 today. “The margin has been eroded,” he said.
Log prices were forecast to continue to rise, potentially influencing private growers to hold on to their timber for longer. “I do not blame the grower for wanting more money but where does it balance out?” said Mr Hackney.
“We are on a distorted trend and I can’t see where it’s going to change without intervention. This is not about profiteering, but industry survival.”
On top of that, he added, were rising log exports from the UK to European countries, accounting for around 450,000-500,000m3 in 2017 based on lists of vessels that have moved.
Another sawmiller told TTJ it had removed a shift because it couldn’t access sufficient volumes of large logs, preventing it from fully servicing high levels of demand.
A further mill reported price increases at the start of the year and probably more prices increases to come “which is not what people are wanting to hear in the market”.
The contact was one of many to use the word “unprecedented” to describe the market. “We are finding it pretty tough, but our customers are understanding.”
He also believed biomass sector raw material purchasing was having an effect on the market.
The problems are affecting every size of sawmill, but some of the smaller mills which have remained on long existing supply contracts have reportedly kept reasonably well supplied, although it’s possible they too could be dragged into the problems when these contracts end.
Another of the large sawmillers, James Jones & Sons Ltd, said it had cut back production at its Lockerbie site by some 10% a week.
Joint managing director Tom Bruce-Jones said palletwood logs had been particularly badly affected, with board mills and biomass generators both encroaching on traditional supplies, particularly in south Scotland.
He said the reduced production had resulted in stock shortages and the inevitable price increases of pallet boards have had to be passed on.
Wood pallet industry body Timcon’s concern has led it to have a special focus on price and availability of wood at its AGM on March 14 in Manchester. James Jones, Confor and consultants Pöyry will address the subject, and a panel discussion is also being organised.
But James Jones is encouraged by the prospect of Scottish government intervention, following recent industry lobbying.
“These unprecedented log prices and mill production cutbacks clearly have a knock-on impact on the entire supply chain and we are encouraged that the Scottish government, which recognises the importance of forestry and sawmilling to the Scottish economy, is actively involved in discussions to look at ways that log supply can be increased,” added Mr Bruce-Jones.
“A number of solutions have been identified by both the grower and processor sectors, and we hope that these measures will ease log supply in the near to medium term, in line with the softwood production forecasts, particularly in south Scotland where the highest levels of investment have occurred in the last five years.”
Forest Enterprise Scotland (FES), which manages Scotland’s national forest estate, told TTJ it was aware and sensitive to timber supply challenges for its major customers in south Scotland since August 2017.
“FES despatches to date and roadside stock levels indicate that our supply against contracted volume is on profile with the sales plan published at the beginning of the year,” a spokesperson added.
“However, we have brought forward volume on long-term contracts with customers in order to assist where possible.
“We note significant quantities of timber from private growers has been marketed in January, principally in south Scotland. This is in addition to the FES scheduled open market sale planned for February amounting to a further 233,000m3 OBS.”
Euroforest, the UK’s largest independent provider of timber harvesting and marketing services, said its productivity had not gone down but the demand for wood it was cutting had increased “significantly”.
“There are a lot of stressed customers who have been wanting material over the last three months,” said Euroforest deputy managing director Ashley Williams.
“There is generally a shortage that is more acute now than ever. The supply and demand balance is out of kilter and this goes across all fibre sources.”
Mr Williams felt the situation would ease come March or April as a result of long-term timber contracts coming back into play.
Mr Williams also highlighted land use restrictions as reducing the amount of wood coming to market, with commercial forest conversion to heathland and native hardwoods in the past 20 years.
More tree planting, he added, was required to fill gaps in future production forecasts but there was currently a difficult and long process required for people to invest in creating new commercial forests.
Mr Williams agreed that another factor in the supply equation was the 1987 Great Storm, because a lot of the windblown trees were ultimately not replaced.
Timber scarcity
“We’ve seen short-term periods like this before but it does feel different,” said Simon Ellis, sales and marketing manager of Northumberland-based sawmiller A&J Scott.
“Our feeling is that there is enough timber to get through but supplies will be extremely tight this year.”
Mr Ellis referenced the euro/pound exchange rate as a factor and the homegrown sector getting more market share.
He hoped some mills would not panic buy and overcommit, affecting the market further. He thought private sector raw material coming to market in March/April should ease the situation. “The concern is if the private sector does not come forward in sufficient volume, but only time will tell.
“So far customers are accepting the price increases. Our customers are long-term repeat customers, which helps. A lot of the buyers are recognising that the relationship with the sawmill is very valuable.”
A&J Scott has noticed more smaller log diameters being harvested, potentially having an impact on the UK sleeper market.
“Sleepers took off last year, helped by TV programmes, showing their use as raised beds instead of stone or brick,” said Mr Ellis. “If the sleeper demand continues, the trade will struggle to maintain supplies.”
And Mr Ellis believes seasonal fencing sector specialists and small independent merchants might get a shock in March when they try to get hold of fencing stock. “It’s becoming harder and harder to buy the raw material.”
The company, like many others, expressed frustration that the long-term projected fall in domestic timber supplies was foreseeable several decades ago.
One of the industry’s key needs is for better and clearer statistical information to give a comprehensive picture of everything going on in the supply chain.
“We do not have a good handle on statistical information,” said Mr Goodall. “We need to understand where timber is going and if there is a structural issue.”
More information was required on mid-Scotland and northern England to fully appreciate the impact of timber flows.
There was evidence, he said, of an increase of harvesting going on but a lack of clarity of where some of the timber was going. The Forestry Commission, he added, was delivering to its current target levels.
Ultimately, he said private owners would decide when they wanted to sell, while some forest owners were completely unaware of the value of their forests.
Investment funds
A change in ownership of forests towards timber investment funds has been a structural shift taking place in recent years, concentrating ownership in fewer hands and effectively giving them more influence.
With high current timber prices, these investors don’t necessarily need to sell as much timber to reach their budgets and the value of their assets is increasing. But the danger of sitting too much on their timber is, of course, to heighten the risk of making their sawmill customers unsustainable.
Mr Goodall said the meeting with the minister was positive. “Let’s improve our understanding of the issues and start to get some solutions,” Mr Goodall added.
The fresh expectation of Scottish government intervention is an encouraging sign that issues may start to ease in coming months, but there is clear frustration across the industry at what is a complex problem with several root causes.
