Anglo-German trade ties strengthen

2 December 2013

A shift in the market has made the UK a more attractive destination for German softwood products. Stephen Powney reports

The UK market is capturing German sawmillers' interest once again. A recent currency swing (since July the pound has strengthened against the euro by about six cents to €1.20), UK importers' willingness to pay higher prices, price rises in UK home-grown and Nordic sawn timber, and a growing realisation that the UK is now in economic recovery with a burgeoning housebuilding sector are all making the market more attractive to German mills.

The last time Germany-UK construction softwood volumes significantly picked up was in 2010-11, but even then that was a long way off the 770,000m³ being shipped back in 2007. In the first eight months of 2013 volumes were down 18.2% on last year to 181,000m³. So, volumes are at a low base but with good prospects for growth in 2014.

UK buyers' famed price sensitivity is being tempered by the realisation they need to keep their different supply channels open to ensure security of supply in a market where demand is clearly picking up.

"The UK market has become interesting again," said Lawrence Webster, of German timber agency Kullik & Rullmann.

"Significantly, a lot of UK customers have the feeling there will be major price increases from next March onwards."

So they are readily accepting price rises now which, Mr Webster added, "is unheard of", particularly at this time of the year.

"We have a new generation in the timber trade that have not experienced price increases. The key to this market is having the timber. If you have it you can sell it."

Wolf-Christian Küspert of Bavarian softwood sawmiller Gelo Timber was in the UK drumming up business when TTJ spoke to him.

"We expected it [a recovery] from the UK, but even the Spanish market is returning," he said. "I am optimistic that we will be selling it at a higher price next year."

Gelo sold two truckloads of pine decking posts in March for €185/m³. He's just sold the same volume for €217/m³.

That's highly unusual at this time of year when demand is traditionally lower and Mr Küspert says it's the same situation in Germany - with KVH prices rising in October, instead of a normal seasonal decrease. Mr Webster said market prices for German 38x225mm scaffold boards had increased from £195/m³ to £205/m³ in the past six months, with prices moving up again to £210/m³.

Sawmiller Ante-Holz agrees that Germany- UK exports for CLS, sawn timber and carcassing are picking up.

"The last two years have been difficult because of the pricing situation," said Ante- Holz's Kai Oberlies. "But the exchange rate, the better demand and price increases for UK home-grown, Scandinavian and Baltic timber give us more optimism for 2014.

More regular business

"I don't think we can snap our fingers and say that the UK market is all OK again. If a lot of players come back into the market and we're too ambitious then we risk flooding the market with timber. However, we have the feeling we will do more regular business in 2014 than in 2013, if the trend continues as it is."

The massive Wismar mill on the Baltic Sea, traditionally the largest German supplier of volume softwood to the UK, should be a bellwether of current sentiment.

"We have always supplied to the UK," said Carsten Doehring, CEO of the mill's owner Ilim Timber Europe, which exports close to 10,000m³ a month to the UK.

"This year there are increasing volumes and prices have grown by a few per cent. We are looking at expanding our product range to the UK and we have a positive outlook for the country."

Mr Doehring said some export markets had become so attractive that even landlocked locally-focused mills were looking further afield, including to China, India, Japan and South Korea.

"This year the German market has improved modestly but the rest of mainland Europe is weak, so our focus is more and more on exports. We have learnt through the economic crisis to be very flexible with capacity so we can change very quickly based on supply and demand," said Mr Doehring. "Our production run depends on the margin we can achieve."

And this includes smaller loads.

"We are looking forward to improvements on shipments to the UK but we are margin-based so if other markets develop faster then [we will switch]. If China has an economic growth rate of 10% that will change the game again."

The Wismar mill, formerly owned by Klausner, was set up to serve the US - a market now growing again. But Mr Doehring said US prices needed to develop further before Ilim's volumes across the Atlantic became substantial.

Thorsten Mrosek, CEO of German timber industry marketing platform Wood Germany, highlighted the rapid increase in Far Eastern imports of German timber.

"China and India haven't been big markets for construction softwood," he said. "They have been interested in hardwoods and roundwood but it's changing now and they're interested in sawn softwood for construction, as well as highly finished products such as glulam."

Log supply

While German mills see increasing export opportunities, many remain hard-pressed on the log supply front.

Norbert Buddendick, of the German Association of the Sawmilling Industry, acknowledged the difficulties but believes tensions have reduced, depending on where mills are based.

"Maybe we are at the peak of log prices, but we do not know for sure. If this is the top of the market, then this is the beginning of the situation where private forest owners say they have to cut their trees. Then there will be more wood available in the future," he said.

"There are enough trees for all the sawmills but the forest owners only harvest enough trees to cover their costs because they want to receive higher prices in the future."

The long dispute between Klausner and the state North Rhine-Westphalia (NRW) over log supplies rumbles on.

Klausner has criticised the state's dealings in the case, accusing it of buying time to raise the matter with the European Commission, while NRW claims the original log supply contracts with Klausner were not EU-compliant for competition reasons.

The company says the state's attitude was harming the healthy development of the entire wood supply chain and it is considering its legal position.

Mr Buddendick believes smaller mills are generally in better shape and don't need to service such massive capacity as larger ones. Lawrence Webster reported no weakening in log prices. "If anything log prices continue to rise because of a shortage in spruce logs."

And Wolf-Christian Küspert, of Gelo Timber, said the Bavarian State Forest Enterprise had reduced the volume level of woodchip supply for bio-energy by 70% and increased prices by 25%, creating a difficult situation for mills that rely on biomass to power and/or heat their facilities.

One contact supplying the UK said a major mill supplier had reduced his Q1, 2014 timber volumes by 60%, he thinks because the mill can't get enough spruce and pine logs.

And the Klausner and Rettenmeier mills near Thuringen are buying bark from smaller mills in order to have enough wood to feed their biomass boilers - a highly unusual situation.

"Demand for softwood sawn timber in Germany is stable, with the smaller mills in better shape," added Mr Buddendick.

"The US market is very interesting as its main supplier, Canada, has problems because of the beetle infestation. We are very optimistic about the US market for the next 10-15 years."

There has been much speculation about the future of two of Germany's largest sawmillers - Klenk Holz and Rettenmeier.

Klenk was recently acquired by a US investment company but little information has been forthcoming about the new owners' plans.

And Rettenmeier is seeking fresh funding. An announcement is expected shortly.

Ante-Holz has a strategy to widen its product range from spruce to also include Douglas fir and pine. "We are looking at other wood species which can give us some advantages in the market," said Ante-Holz's Kai Oberlies.

This includes in the Home and Garden range, with Douglas fir decking and fence panels. Demand for Douglas fir is increasing in the German market and people are appreciating the fact it is stronger, more weather-resistant and attractive.

"It gives us more flexibility and supply is guaranteed to the end user. We don't want to produce less spruce but will try to increase volumes of other species," said Mr Oberlies.

Ilim’s Wismar mill is increasing its volumes to the UK
Ante-Holz has added Douglas fir fence panels and decking to its Home and Garden range