Mild weather cools Russian supplies

Once again the weather throughout northern Europe is affecting log supplies to the sawmills, and the comparatively mild conditions have restrained logging operations in Russian forests.

Virtually all sources that were contacted confirmed that shipments from Russia had fallen well behind, and in some cases contracts for December shipment are not expected to sail until February at the earliest. One shipper commented that the knock-on effect will impact on supplies for the rest of the year but, if colder weather does not arrive soon, and the ground does not freeze enough for the felling equipment and transport to access the forests, then the situation will deteriorate further.

In addition to delayed shipments, stocks of Russian redwood held in the UK are beginning to thin as merchants are making call-offs and scheduling their planing requirements for the first quarter. Although centre-cut sizes are still available, wider boards and decking specifications are becoming difficult to obtain. The same is true of Nordic stocks, and some Scandinavian shippers are now outsold for the first quarter.

While the trade was on holiday over the Christmas period, there was some significant corporate activity in the northern region of Archangel. The Solombala sawmill, which produces around 350,000m3 of sawn timber, was acquired by Solombala Pulp and Paper (SPP), a previously separate entity. SPP is one of the three largest companies of its type in the Archangel region, and now there is speculation that SPP may concentrate more on processing pulp logs rather than sawlogs. If sawn whitewood production levels were to be significantly reduced at the mill, then this would add to the growing shortages in the market.

Taking an overview of the whitewood market, volumes of Russian whitewood have become more difficult to obtain; the same has been true of the Baltic states where production has been falling over the past two years. Although whitewood exports rose from Sweden last year, many mills lack confidence that log supplies will run smoothly for the first half of 2007. The climate in Sweden has so far been too mild and wet for full logging, and there has been a serious rise in insect damage to many of the trees. The changing weather patterns have raised concerns in Sweden, and the authorities are predicting that temperatures could rise by 4OC within the next century. Studies are under way to determine the effect climate change could have on the road networks if storms and flooding were to increase.

With supplies of whitewood becoming tighter within Europe, several UK importers have turned to eastern Canada in order to supplement their first-quarter requirements. Some consignments of carcassing are now lined up for shipment, but specifications can be limited when compared with those from the Nordic region.

Prices of both Russian redwood and whitewood are rising steadily, and in many cases are being driven more by buyers increasing their offer prices than by shippers calculating what the market should pay. Several of the importing countries are buying aggressively in order to secure supply, but in the UK, many importers are still lacking confidence in domestic demand to join in.

Compared to the price structures at the end of the second quarter of last year, average prices in the UK for redwood 4ths have moved up by approximately 25%, while unseasoned whitewood specifications have increased by a figure closer to 30%. This is a marked turnaround for a product which, for many years, has been traded at the bottom end of the market. Now it has made up more ground than both construction and joinery grades, and many think it could rise further.

Current trading conditions within the UK are patchy. Some merchants have found that January started off on a busy note, while others report that sales are poor.

The Bank of England's raising of interest rates on January 10 – in response to rising inflation and consumer spending – has already brought warning statements from the housebuilding sector that construction could slow down in the near future. This is causing concern in the trade because if demand falls too far, it could induce some of the merchant groups to lower their margins in an attempt to retain turnover levels.

With rising cost prices, such a move would result in merchants absorbing a part of the increases, and this would eat into profits made during 2006.

The increase in interest rates has had the effect of strengthening sterling, but it is unlikely the adjustments made to contracts made in euros, US dollars or Swedish kronor will have much impact on general price levels. The largest volumes lined up for shipment in the first quarter have already been purchased in pounds.

To summarise, warm weather has prevented logging operations in Russian forests and, as a result, mills are behind with their cutting schedules or have suspended production. Global markets are still buoyant, and buyers are driving up prices by competing for the same specifications. UK importers are generally holding back, but buyers of unseasoned whitewood are snapping up anything that becomes available and paying record prices.

Domestic demand in the UK has not regained its momentum since the winter holiday, and in most cases it is reported to be “quiet”.

Without a period of freezing conditions, supplies from Russia are unlikely to satisfy even the weakest demand from the UK during 2007.