The hardwood business has limited options in preparing for Brexit, according to our latest canvass of the sector.
Traders reiterated views in TTJ’s last market survey, that the tactic of some softwood importers, to increase UK stocks against port disruption post Brexit, was not so viable for them.
“Our softwood peers are dealing in larger volumes, generally shorter lead times, faster stock turn and tend to have the storage, so it makes more sense for them,” said one agent/ importer. “Some hardwood businesses are stuffing in a bit more stock here and we’re creating a modest buffer on the continent where our kilning’s done. But we have limited space and, given delivery times, it’s not a route so open to us on tropical. Hardwood is also a higher priced item, so expensive to stockpile, plus your exposure to possible adverse currency movement due to Brexit is proportionately greater.”
On the positive side, while one importer reported “surprising lack of interest in Brexit” among suppliers, most said they had assurances theirs would be supportive whatever the deal. “It’s in everyone’s interests to co-ordinate closely to ensure minimal disruption,” said another importer/distributor.
One company had also evaluated the impact of moving to World Trade Organisation rules on a no deal Brexit and was not too perturbed. “Panels may face 3% or 4% added duty, but on lumber it’s nothing onerous,” said a spokesperson.
Despite the Construction Products Association downgrading its 2019 construction growth forecast from 2.3% to 0.3%, Brexit anxieties also don’t seem to have significantly impacted hardwood sales. And a key driver is reported to be continuing stable demand from joinery, and by connection, building.
“Commercial building, particularly office construction, is forecast to be hard hit by a Brexit confidence downturn. But better news for hardwood is that private housing and infrastructure, including harbour development, are expected to fare better,” said an importer. “Overall, business was steady last year and that’s continued this year.”
One agent saw some signs of added customer caution, but nothing overly significant.
“There’s perhaps more buying little and often and joinery customers say demand for their bigger ticket items has gone,” they said. “But while there’s minimal growth, and some indications of competitors chasing market share, broadly business remains stable, and that was the consensus of the last London Hardwood Club meeting.”
On supply, no significant fallout has been detected yet either from Chinese tariffs on American hardwood, imposed as part of the countries’ trade dispute. But there’s uncertainty over whether this will last.
“It’s obviously a major concern for American mills as China has been 60% of their exports,” said an agent. “Initially the impact was dulled due to rain holding up log supply and underpinning prices, and mills and their Chinese customers were also reported to be splitting the 10% tariff. But harvesting has since increased and we’re hearing the Americans are now swallowing the whole tariff, so we may get more feed-through in terms of increased availability and price depression.”
So far the species affected most is red oak, America’s biggest export to China, with prices down 25% since tariffs were introduced.
“That makes it 40% less than European oak, and, if the Chinese increase their tariff to 25%, as threatened, it could go lower still,” said an importer. “The effect of this is limited so far as Europe isn’t generally a red oak buyer, but we’ll see if it creates more conducive conditions for it and how it’s promoted here this year.”
Another importer did not rule it out, but said UK customers would still take some persuading to switch to red oak. “With some it’s just an innate prejudice, plus traders may question whether they want to sell a timber that brings 40% less revenue than European oak,” they said. “But people may be swayed by seeing it taken up more in the market – and its major use in Bloomberg’s new headquarters in London last year gave it a real showcase.”
American white oak prices were also reported to have softened a couple of per cent recently, but then stabilised.
“What we are seeing in white oak, though, is more variation on price point,” said an importer. “The supplier spread on 8/4 FAS was US$200-300/1,000bd ft, now it’s US$500-600.”
Lower grade walnut is also down, although the UK opts mostly for super prime, and tulipwood was reported up 5% since December.
Ash prices are steady, as is availability despite attrition by the emerald ash borer, with National Hardwood Lumber Association phytosanitary kilning certification thought to have eased supply.
But one area where US supply has continued to tighten is in FSC-certified hardwood, with the lack of premium and a “more arduous controlled wood standard” causing “general loss of appetite for certification”.
Heavy snow left Austrian and German mills temporarily struggling for logs, but overall European oak availability is reported to be good and prices stable.
“Chinese demand has cooled and increased kilning capacity in Croatia, partly down to Italian investment, has made phytosanitary restrictions on green oak exports less of an issue,” said an importer.
Beech supply has been tighter, however, with prices up 3-5% in the last six months and a rise of 10% is predicted for 2019.
“We thought beech’s loss of FD60 fire door business would decrease demand, but it’s increased,” said an importer. “It’s versatile and has clearly found other markets.”
African supply is reported steady, with fewer hold-ups at Douala port in Cameroon, and prices generally stable, although stable to firm for sapele and sipo due to demand.
An agent said African business generally has been good. “It’s partly demand growth, but also down to Rougier’s reduced presence after divesting its African operations except in Gabon.”
One African issue has been difficulties sourcing iroko with the necessary certification. And demand for Ivory Coast framire is reported to be continuing to slide due to caution over legality verification.
There are also continuing issues sourcing PEFC-certified Malaysian meranti and keruing, attributed to a stricter certification regime.
Meanwhile, legally verified FLEGT-licensed solid hardwood products from Indonesia still have limited UK presence. Bangkirai decking seems to be the main product selling, but “primarily due to FSC certification rather than licensed status”.
It’s felt more promotion of FLEGT is needed if licensing is to gain market traction. However the European Forestry Institute has just launched a new online resource to help business communicate the initiative – www. timberbuyers.flegtlicence.org.
The UK Department for International Development is also funding the £5.5m Multi-Stakeholder Forestry Programme phase 4, which supports Indonesian efforts toward sustainable and legal forestry and includes exploring routes for FLEGT promotion.
Traders say modified wood continues to ‘nibble away’ at hardwood market share, and expect it to gain impetus with Lignia Wood signing its Timber Connection distribution deal and launching teak deck alternative Lignia Yacht.
Composite Prime becoming the first supplier to join the TTF also underlined the fact that the sector has to learn to live with composite competition, said an importer.
Meanwhile, UK hardwood traders are, like business generally, hoping for Brexit resolution sooner rather than later, but not banking on it, and yet the general outlook remains phlegmatic.
“Even with a deal we envisage a period of sluggishness,” said an importer. “But people will still buy and sell hardwood and we’re still budgeting for 3-4% growth this year.”
