While a large part of central Europe is suffering from record flooding, the opposite is true in the Baltics as hot, dry weather has prompted the Latvian authorities to impose entry restrictions into the central forest areas as a fire precaution. These measures will impede logging operations for the present and reduce much needed whitewood supplies for the sawmills.

So far this year many of the mills have been trying to catch up on late shipments caused by earlier supply difficulties created by wet conditions preventing heavy equipment getting into the forests.

Without a consistent supply of logs, the mills are unable to reach production targets. There are numerous indicators of how difficult things are, one being the reduced volume of cargoes arriving at the quayside and the low volumes of timber for export at the berths. One agent reported that shipping companies running liner services have been “sweeping the quays” in Riga in order to accumulate sufficient volumes to fill vessels.

A further comment was made that, behind the scenes, some Baltic shippers have been making enquiries in Russia for sawn timber specifications in addition to logs. The sawn goods could be further processed at the mills by kiln drying and grading.

The current difficulties centre mostly on whitewood; there is a better supply of redwood logs, but UK buyers in particular are wary of the discolouration in pine and they are holding out for specifications in spruce.

Steady increases

Prices are continuing to increase steadily, particularly on the forward market where the top quality Baltic shippers have broken through the U$185/m3 fom threshold for dry-graded stock – levels based on an exchange rate of U$1.55/£1. Agents have reported that the higher prices are meeting little resistance from buyers and, with the Swedish shippers also becoming extremely bullish, the new price structures appear to be gaining some long-term credibility.

The situation regarding landed stock in the UK is, however, slightly different. Although some terminal operators have increased selling levels, there are still traders selling volumes of both unseasoned and dry-graded specifications at levels lower than the replacement rates on the forward market. When these volumes have been absorbed into the market, the full impact of changes will begin to hit rapidly.

Many shippers and agents alike are warning of severe shortages in the pipeline and the effects will begin to bite this month.

There are few mills that can ship buyers’ specifications under new contracts in anything less than five to seven weeks, even for small volumes. Also, shippers have been reluctant to take new contracts for loading beyond September because of the rising market. This has left many UK importers under-bought for the third quarter.

Value-added sales

The Baltic producers are continuing to push for value-added sales and, although the US market has lost some of its sparkle, some larger producers are shipping increased volumes of CLS to North America because they see better returns for the future.

The improved selling price of wood, and its related products, provided a boost to the overall performance of exported materials from Latvia during the second quarter. Exports increased by just over 2% compared with last year, but the total price of imported goods increased sharply by more than 4.5%. Timber has become an important commodity for the Latvian economy, playing a key role alongside metal and textiles.

In Lithuania, the increased strength of the lita against the US dollar has contributed towards a reduction in consumer prices and a period of negative inflation. The internal construction market has been growing considerably, and during the second quarter it rose in financial terms by over 29% against the same period in 2001.

This increase in activity on the domestic market is a growth area for the Lithuanian forest products industry; the Statistics Department says that the largest gain made in production output came from the wood processing and furniture sector.

The outlook for the Lithuanian economy over the next five years is for low inflation coupled with a stable exchange rate, which is now pegged to the euro. However, the economic indicators warn of possible stagnation if deflation continues for too long.

Turning to Estonia, the forecasted growth of industrial output for this year of 5-7% has been upheld. Unemployment has been falling and economic growth is projected to reach almost 4.5% for the year.

Economic stability

All three Baltic states are enjoying a period of stability, with an expectancy of further growth. As a result, investment from other countries has continued to rise and the forest products industry is modernising and gearing its products towards new markets.

The improving price structure to the UK, coupled with a better exchange rate between sterling and the Canadian dollar, has re-awakened some interest among eastern Canadian shippers. Some agents have commented that serious thought is being given to cutting 47mm SISE stock in SPF for the UK market. This move will create some concern among those UK traders who fear oversupply could develop, but the Canadians are not prepared to sell cheaply and it is unlikely that volumes will reach significant levels in the foreseeable future.

No offers from the Canadians have been circulated yet but, if there are shortages in the pipeline from Baltic and Nordic producers, then Québec mills may well find British buyers receptive to re-opening old connections.