Strong global demand for both whitewood and redwood is maintaining Finnish sawmillers’ optimism, although business is not without some challenges.

A lot of this demand is coming from China but activity has also increased in central Europe, and the US requires more timber as housebuilding picks up. Demand is also firm in the UK market.

“We had a very good first quarter, partly because customers ran their stocks low in the fourth quarter, and now we’re in the busy season of the second quarter,” said one contact. “My customers expect this year to be as good as last year, if not marginally better.”

Another shipper reiterated that the UK market was strong in the first two quarters and, while he didn’t expect a dramatic fall in the second half of the year, he did expect quieter trading.

Although UK demand is healthy and Finnish shippers are maintaining export volumes the weak pound and the market price are providing little fat for mills.

“Log prices remain quite stable but sawn timber prices at ex works have suffered because of the weak pound,” said one contact. “The pound has recovered a little since late last autumm but remains about 10% lower than its pre-Brexit level. This has had a significant negative impact on ex works prices, making sales to the UK less attractive than other markets.”

Another contact agreed that mills were not getting rich on UK business but as some smaller mills from other countries may redirect a proportion of volumes to more lucrative markets this would create a tightening in supply, and start a correction in prices.

“Companies that are committed to the UK market, that carry stock and have been in it for years, year in, year out, good times and not so good, will continue but there are some smaller sawmillers who drop in and out of markets,” he said.

UK demand, however, is strong, with all sectors reported to be busy, from packaging and pallets to RMI and housebuilding. The UK’s major housebuilders have reported strong financial results and the recent White Paper on housing indicates the government is committed to building more houses. There is scepticism, however, as to whether the sentiments outlined in the White Paper will be turned into action.

“The government says it wants to increase housebuilding but let’s see what they’re able to deliver on because saying and delivering are two very different things,” said one sawmiller.

Another contact was equally unconvinced because previous UK governments have recognised the need for more housing but done little to make it happen.

“Let’s hope one day it does materialise because everybody acknowledges there’s an issue but it’s never addressed,” he said.

While UK business in the first two quarters has been strong the second half of the year was harder to predict.

“Inflation will gather pace which will squeeze incomes slightly and by the second half we’ll be into Brexit negotiations which will create some uncertainty and have a slowing effect,” he said.

That uncertainty may also make businesses reluctant to invest, he added.

Another contact was more hopeful about Brexit’s impact.

“It seems that despite all the horror stories about the effects of Brexit we haven’t seen any impact on volume, only the effects of sterling weakening. It’s a bit early to say what the impacts of Brexit will be but I’m not too pessimistic at the moment,” he said.

He was full of praise for the UK’s timber construction industry and believed many European countries could use the UK as an example to promote wood.

“Generally UK policy makers understand that wood is an environmentally friendly product with a low carbon footprint. You have great timber frame construction projects in progress,” he said.

Gobal demand for whitewood is expected to maintain a strong position, and strengthening prices, but the picture is slightly less clear for redwood.

In response to the stronger global demand last year Finnish mills increased total production to 11.4 million m3 – around 1 million m3 more than 2015. Last year Finland also exported a record 8 million m3 and exports to China exceeded 1 million m3 for the first time – an increase of 60% on 2015.

China is Finland’s biggest whitewood market by volume, and second biggest in value. It is also becoming an increasingly important redwood market, largely thanks to an export programme by the Finnish Sawmills Association and enterprise orgranisation Finnpro. In 2015 China wasn’t even among Finland’s top 10 redwood export markets; now it’s the seventh largest.

Redwood export volumes to MENA countries also increased last year but were not matched by a rise in prices. Volumes to Egypt increased but prices contracted by around 10%, reflecting the country’s struggling economy, while in Algeria the low oil price put downward pressure on sawn timber prices. It is hoped, however, that Egypt’s improving foreign exchange reserves and the Algerian government’s efforts to boost the economy will help to raise timber prices.

“We have definitely reached the bottom so there’s only one way, which is up,” said a shipper. “The signs are relatively small but for the first time in months we see positive signs.”

Finland’s economy is also improving. This time last year it was dubbed “the new sick man of Europe” but after several years of gloom the economy is picking up. Economic research institute PTT forecasts GDP to grow by 1.7% this year and 2% next year which can only be a good thing for Finnish sawmills, given that the domestic market is their biggest single market, consuming around 3 million m3 a year.

“It’s suffered from a lack of demand over the past 18 months but activity is improving, particuarly for redwood,” TTJ was told. However, one contact pointed out that although construction activity was increasing, the driver was multi-storey apartment blocks in bigger cities, rather than timber frame.

While global trade is offering many opportunities there are also some uncertainties. The most obvious is exchange rates, but there’s also the possibility of freight costs rising as container companies try to mitigate poor business in recent years.

Anticipating this, some Finnish mills exporting to China are considering alternative transport options such as bulk vessels direct from Finland to China or rail through Russia and Kazakhstan.

The outcome of the next round of talks for the US/Canada softwood lumber agreement could also change dynamics, especially as they are the first under President Trump’s leadership.

“It’s difficult to estimate the impact of his policies because he tweets something and does something else,” a contact said. “The US economy is growing and there’s a need for housing so construction will remain positive.

However, if taxes on Canadian lumber rise it could result in a few mills in Canada closing and will force the Canadians to steer their exports to other markets.”

It could also open up the US market further for Swedish and German planing mills. Finnish shippers are generally positive about global markets and optimistic about the year’s prospects. As one contact commented: “It’s a good time to be a sawmiller at the moment”, while another expressed the slightly less effusive “all in all it doesn’t look too bad at all”. However, they’re aware that the equilibrium can be upset easily by factors outside their control.

One contact summed it up: “Everything is positive but half a year is a long time in our business. We can look into our crystal ball and see everyone is safe until the holidays but what happens after that, who knows.