FOLLOWING an extended period of price rises and increased activity, timber markets at home and abroad appear to be settling down. However, with continued political uncertainty, a little stability is hardly cause for complacency.

GLOBAL TRENDS
Globally, the sawn timber market now appears to be in balance, with prices stabilising at levels significantly below those of one year ago, as supply curtailments finally catch up with slowing demand.

Although the global economic outlook continues to remain positive, there are signs that the global increase in timber consumption is slowing down from 3.5 per cent per annum in 2014 through to 2017, to 0.9 per cent in 2018 and a forecast of 0.4 per cent in 2019, so in the short term demand looks likely to remain weak. Global tariff wars, Brexit and continuing tension in the Gulf have led to increased market uncertainty and reduced confidence, which impacts on prices.

At the same time, within the last year there have been a series of extraordinary environmental incidents which have led to increased raw material supplies being forced into a falling market, which has resulted in falling prices since Q3 of 2018.

The headline price of US 4x2 SPF carcassing has fallen from around $600 to $400 per mbf, though it has now stabilised at this level.

Among the main factors behind this price slide, in Europe significant wind throw over the winter, exceptionally hot summers and many over-mature stands have led to extensive spruce bark beetle attacks.

The salvage operation has been rapid and has led to a significant increase in sawn timber production, which has been pushed into already crowded world markets.

When the US market slowed in autumn 2018, large quantities of Canadian carcassing timber were diverted to China, together with the European material and increased supplies from Scandinavia. The net result was a glut of timber on the docks in China.

While the Chinese market remains the largest market in the world, consuming 600 million m³ annually – of which 54 per cent is imported – there have been significant short-term changes to patterns of consumption.

China launched a programme of strict environmental regulation in 2018 and has continued this through 2019, leading to the closure of large numbers of small and medium-sized primary producers (sawmills, veneer plants, etc) and secondary processors (furniture and flooring). In time, these plants will be replaced by more modern facilities that meet the tougher new environmental standards or relocate to inland China, where they can take advantage of easy access to Russian timber, but in the short term demand for timber is reduced at a time when global supply levels are high, leading to rising stocks and falling prices.

The previously robust US economy is now slowing, partly due to a wet winter and partly due to a general global slowdown which has held back growth in its housing market. The lower-than-anticipated level of housing starts in Q1 2019 mean this year the US is unlikely to hit the figure of 1.25 million starts that was recorded in 2018. Long term, there are many signs that the US housing market is set to boom, so there remains a mood of quiet optimism. Throughout Canada and the US, sawmill production curtailments have been necessary to reduce sawn timber supplies in the short term.

In the longer term, it is interesting to note that environmental factors (mountain pine beetle epidemic, spruce bark beetle, Douglas fir bark beetle, massive forest fires in 2017/18 and caribou protection programmes) have led to significant reductions in the BC interiors production capacity.

DOMESTIC MARKET
The domestic market continues to be significantly influenced by events elsewhere in the world. The global slowdown has led to large volumes of Swedish and Baltic timber being dumped into the UK at the same time that Central European producers (Austria, Germany, Czech Republic, Hungary and Romania) have been increasing deliveries to the UK. The net result has been a flood of imported carcassing timber into the UK, putting domestic producers under pressure.

In the first three months of 2019, these problems were compounded by the pound strengthening on the back of optimism that Theresa May’s Brexit deal might be accepted. Following Mrs May’s resignation, the increasing likelihood of Boris Johnson becoming prime minister and the Labour Party going into self-destruct mode, global markets have lost confidence in the UK and the pound has been steadily falling since May.

SOFTWOOD SAWLOGS
UK prices for sawlogs have fallen through the first half of 2019 on the back of increased supply and very patchy demand for sawn timber in the spring of 2019. The market has split into three categories by species group.

1. Spruce logs: The spruce log sector has been particularly hard hit due to the influx of imported kiln-dried carcassing pushing prices down, leading to UK carcassing mills having to curtail production. As finished product prices have fallen, the processors have had to try to reduce their raw material prices to compensate.

2. Redwood logs: Demand for the prime fencing species (larch, Douglas fir and pine) has held up much better and there has not been the scale of reduction that there has been for spruce logs, with good-quality logs still fetching around £70 per tonne delivered. Demand has remained reasonable for fencing products and most mills have been able to run at or near normal production levels. Of more concern has been the closure in the last year of two markets in Yorkshire for mixed conifer sawlogs, with Job Earnshaw at Midgley making the decision to stop sawing and Premier Forest Products stopping cutting roundwood at the Doncaster mill in the first half of 2019.

3. Mixed conifer logs: Mainly used for pallet and packing, prices have fallen for these products to around £60 per tonne delivered. If prices fall much below these levels, available volume will start to be eroded away to local biomass buyers, fencing and other specialist markets, making life even more difficult for processors using this sort of material.

SMALL ROUNDWOOD
Demand and prices have fallen right back from the peaks of autumn 2018. Increased production from the forests has meant that most markets are now well supplied and can start to focus their efforts on reducing raw material costs.

While in the short term this has been a successful strategy, in the longer term there are signs that roadside stocks are decreasing, productions levels in the forest are static and new sales being offered to the market have fallen right off, so we could be seeing the bottom of the market cycle. Regional disparities in prices have become more pronounced, with prices of £35 per tonne roadside being offered by some buyers while others are still offering £45 to £50 per tonne. Again, supplies are most plentiful in the North. The seasonal slowdown in the biomass sector is also most pronounced. 

TIMBER AVAILABILITY
While prices have fallen from the peaks of late 2018, they remain very healthy, relative to the last 10 years, and it is still very worthwhile for woodland owners to undertake harvesting operations. The high prices did bring more timber to the market, but there are now signs that supplies of standing timber are reducing, with less new sale instructions coming forward and merchants managing production levels in the forest.

There has also been an increase in thinning activity, particularly in broadleaves as a response to the shortage of firewood the market experienced in the winter of 2018 and 2019. This sort of work is less productive than conifer clearfelling and will lead to lower output levels from the forest in the second half of the year.

The outlook is for reduced supplies in the second half of the year, which will present challenges for processors as they try to secure volume for winter 2019/20.

HARDWOOD SAWLOGS
Those with “oak fever” seem to have taken a collective cold bath this spring, as there has been a noticeable stabilising of oak prices in the first half of 2019. Chinese demand for oak sawlogs from Europe has slowed down this year, leading to better availability from Europe at prices that are competitive. Oak sawlogs are now readily available from France at around £12.50 per hoppus foot delivered, which has put a ceiling on domestic roadside prices for around £11 per hft (£300 per m³). Export demand for beech has remained steady with prices of £80 per m³ underbark and upwards available for planning-grade beech sawlogs. Despite increased supplies of ash sawlogs, this market has held up very well throughout the season and into summer. Prices of between £90 and £100 per m³ (£3 to £3.50 per hft) at roadside are available for “export grade” ash, currently, and it is hoped that these prices can be maintained into winter. In many ash woods, the impact of ash dieback has become really pronounced this summer and it would appear to be wise to get felling plans in place to recover value from ash woods while it is both safe and economical to do so.

FIREWOOD
There has been a steady increase in firewood harvesting activity in 2019 and, as supplies have increased, prices have stabilised and started to fall in some areas. In the Midlands and south of England, prices have settled back to £50 to £55 per tonne at roadside, as large volumes of diseased ash has been brought to market this year, while in the North, the supplies are only just starting to improve and prices are £60 to £65 per tonne at roadside.

SUMMARY
Domestically, the market appears to be settling down at lower activity levels and prices 10 to 20 per cent back from the peaks of late 2018, but we are still in a period of great uncertainty as the country tries to come to terms with Brexit, so expect further market volatility.