Summary
¦ Most mills were better prepared for the winter weather.
¦ Demand has been good since early January.
¦ Log prices continue to be very high.
¦ An influx of Irish sawn timber brought British prices down.

At the time of the last British-grown timber market report the sector was looking ahead to the fourth quarter and praying it didn’t experience a repeat of the snow and ice of the previous winter. “It will be interesting to see if mills take more precautions and build up more log stock – some people have very short memories,” said a contact at the time.

Fortunately they weren’t that short and although the early arrival of the snow in November caught some out, most mills’ stocks were sufficient to meet demand at the end of the year. For some mills that was down to a dip in demand – “fortuitous, but not the sort of fortune you want” – while for others it was more a case of hanging on until the customary Christmas shutdown.

“We bucked the trend and had a very strong finish through November and December,” said one sawmiller. “Had we not planned to shut for Christmas anyway, we were within 24 hours of having to stop for the weather – we couldn’t have kept it going for another day.

“There was no great depth to the order book, but it just kept rolling,” he added. “Over the fourth quarter we were about 8-9% up.”

Restricted forest access

It’s likely that the renewable energy sector felt the impact of restricted access to forests and lower harvesting levels, according to ConFor. “That sector looks to lay down stocks to cover the winter and Christmas period when you’ve got [mill] downtime, but everyone still needs energy,” said a spokesperson. “A number of them struggled to secure stocks.”

With better weather in January both log availability and demand picked up and mills are now building stocks in anticipation of a strong second, if not first, quarter.

“UK softwood producers are in the starting blocks waiting for the gun to go off,” said a spokesperson from the UK Forest Products Association. However, he added, the lateness of Easter this year may be a double-edged sword, bringing the promise of finer weather, but also delaying the start of the season.

“The big sheds are always geared up for a big splurge at Easter and it’s a few weeks later this year which could slow things down,” he said. “There’s an expectation that the second quarter will be the most telling – people are expecting prices to rise and demand to improve.”

Having said that, British mills were already seeing improved demand in January, with one quoting despatches and invoices 40% up on January 2010. “That’s partly a reflection of how bad January last year was, but it’s not all down to that,” he said.

“We had a fantastic month in January, we hit budget for February by the middle of that month and the orders are flooding in for March, so we’re having a really good time at the moment,” said another sawmiller.

High log prices

With strong demand, log availability is crucial and, happily, it’s in good shape. While the Forestry Commission continues to supply the bulk of the raw material, private growers have kept the faith with the British timber market and have not taken their usual winter sabbatical in such great numbers. The reason – very high log prices. “It’s only when the mills stop paying those that the private growers will fall back and there’s no sign of that,” said a contact.

While the price of British sawn timber dipped in the last few months of 2010, brought down by an influx of Irish material, log prices failed to follow suit and are still at the peak they reached last summer, having risen 50% since January 2010. It’s a situation one Scottish sawmiller said he hadn’t seen in his 25 years in the industry. “Sometimes there is a lag of three or four months, but there’s absolutely no indication this time around that log prices are about to follow [sawn timber prices].”

He attributed this to log prices being pegged by the biomass sector and board mills and warned, “this could be a whole new dynamic that the trade will have to face”.

“The renewable energy sector is providing a strong basement price for roundwood,” agreed ConFor’s spokesperson. “There’s no cheap wood out there and because demand is good across all [product] categories, those prices are likely to remain strong.”

Irish impact

The targeting of British log supply and – more significantly – its end markets by Irish timber processors has caused some real bitterness in the domestic sawmilling scene. While their log buying activity – focused on the west coast of Scotland – has tailed off, Irish sawn timber is providing stiff competition and “dragging the market down”.

The selling of Irish timber on the British market “at way below the market rate” had a marked impact on domestic sawmillers in the last quarter of 2010, forcing them to address their prices to maintain order levels. Concern reached such a pitch that at least one British sawmill has retaliated by appointing agents in Ireland. “They’re starting to get the point now,” said the contact, adding that he expected prices to have reached last October’s level by April.

Production at British mills, while not at capacity across the board, is at a good level, particularly given the time of year. Some are careful not to increase output too dramatically, for fear of pushing log prices up still further.

Product categories are enjoying equal demand, with fencing expected to “take off” as spring approaches. Fencing producers appear to have resisted making price cuts over the winter and are optimistic they will be able to push price rises through.

Agricultural fencing

The market for agricultural fencing continues to be very strong, with one sawmill near to having to close its order book for purlins. “There’s still a lot of optimism in the farming community and they have the confidence and income to invest in renewing fencing,” said ConFor’s spokesperson.

The pallets and packaging sector still prompts some head scratching. “It got to December and the prices dropped and every man and his dog seemed to have stock,” said a sawmiller. “We worried if we’d dropped prices enough but within two days of coming back in January the demand placed on us was almost beyond our ability to supply. That continues, so we anticipate the prices moving forward in Q2.”

He also warned of potential shortages, particularly in relation to 16mm boards. “Pallet makers are [cutting costs] and going for thinner boards, while a lot of sawmills are turning to thicker boards because they get more for it.”

Import substitution is still very much the name of the game, rather than underlying growth in the market and this is particularly evident with carcassing material. There is a view that Swedish mills, in particular, need to increase their prices but that resistance in the UK is preventing them. “In many cases the customer has reached a point where he’s saying ‘I agree it’s worth £200 per cube, but I won’t be paying that’,” said a British sawmiller.

So, he added, whereas before Christmas he would have expected construction timber prices to increase, “every week that goes on and the Swedes don’t put their prices up, the likelihood of our being able to do so gets further away”.

Greater market share

In the meantime, while the overall market may not be increasing, British mills continue to take a larger share. One reports gaining a new customer every week at the expense of imports, while another CITES some major merchant groups that have made the switch from imported to home-grown timber.

Those mills that have invested in adding value and finishing are working hard to market their strength-graded products on the basis of quality – BSW, for example, is taking part in the 2011 RIBA Roadshow tour and is hosting CPD seminars to promote British C16 timber.

However, there’s no denying the fact that import substitution is largely down to currency exchange rates. “I’m under no illusion that people are buying British timber because they’re being patriotic and supporting British manufacturing,” said a contact. “They’re buying it because it’s cheap and convenient.”

Customers have run down their own stocks and now look to buy on a much more hand-to-mouth basis. This is working to British mills’ advantage as they have ready stock availability and are fleet-footed with their logistics. “A customer in Dover can ring me today and we can have a load in his yard tomorrow lunchtime,” said a Scottish sawmiller. “Sixteen different picked packs, job done.”

However, this just-in-time purchasing does have an impact on mills’ ability to “read” the market.

“There’s no depth to the order book,” said a contact. “It barrels along one day and you may have nothing to send out the next.”

“The problem is smoothing that out,” agreed another. “Overall we’re very happy, but we get some very, very good days and then we have some poor ones and you can’t ring around trying to push sales because the next day you might be 50% ahead of budget.”

Looking ahead, the consensus is still one of cautious optimism and of “expectation, rather than confidence”.

“It’s the great unknown at the moment,” said a sawmiller. “We could have a fantastic year or an average one – it depends on so many external factors.”

“Our assessment is that 2011 will be no better and no worse than 2010, but there’s no white knight riding to the timber industry’s rescue,” said another. “We’ll just get our heads down and get on with it.”