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Report from
Europe
UK market for African hardwoods ¡°recovering well¡±
after lockdown
The UK market for sawn hardwood has been recovering
well following easing of COVID-19 lockdown measures
from June onwards. However, there are significant
problems on the supply side with COVID-19 contributing
to reduced harvesting and mill operations and a significant
reduction in freight capacity.
This adds to the pre-existing challenges imposed by too
much focus on a limited range of commercially valuable
hardwood species in the UK, a feature of the market which
sits uncomfortably with the UK¡¯s strong preference for
FSC certified material.
These were key messages from the discussion of the
current state of the UK and wider international trade in
sawn hardwood at the latest quarterly meeting of the
London Hardwood Club (LHC) held online on 9
September.
The virtual meeting was chaired by Rupert Walker of
Timberlink International who welcomed over 40 LHC
members from across the UK as well as members and
invited speakers from the USA, Italy, Belgium and other
European countries. Speakers included Ken Walsh of
Danzer UK, Hank Marcel of Robinson Lumber, Ben Jenn
of NHG, and Rupert Green of Greentimber.
The report on the situation in the African hardwood trade
noted that log stocks and sawn timber supplies in the
region are comparatively low, partly because of the effects
of COVID-19 forcing producers to operate with social
distancing measures, and partly because of the long-term
focus on a limited range of commercial species,
particularly sapele.
Supplies are expected to remain low, both in the short
term, now that mills have closed for annual maintenance
over the next two months, and longer term with increasing
numbers of mills reporting only limited availability of
sapele. This is true both of Congo and Cameroon. It was
suggested that ¡°for the last decade 10 years, production
has been around 70% sapele while other species have been
under used. From a sustainability perspective it is
necessary to look at other species¡±.
It was suggested that, despite the pandemic, there is
¡°sufficient demand for all sawmills to receive full order
files¡±.
There is a general trend towards specialisation by African
suppliers, with those operators with 100% FSC certified
concessions focusing increasingly on premium markets,
particularly in Europe, and those with kilns focusing on
supply only of kiln dried material to ensure full utilisation
of their own capacity and maximum added value at a time
when supplies are restricted.
It was suggested that the pandemic has not affected
logistics in the African supply regions too much, and in
fact congestion for shipment out of Douala is now less of a
problem as volumes moving to Asia have fallen. However
red tape is still a major problem. The costs of shipping via
Douala, already very high compared to other ports
elsewhere in the world, are rising.
The new port at Kribi in Cameroon is helping to ease the
congestion at Douala. Although Kribi port was built a few
years ago, only recently has it been properly linked into
the wider road network in Cameroon. Most shipments out
of Kribi are destined for Asia with very little to Europe but
the port has helped improve the logistics situation at
Douala.
Sapele prices on offer to European importers are expected
to at least remain stable for the rest of this year with some
potential to increase. Although sipo prices have weakened
a little in recent months, there may be some increase later
in the year. Iroko prices have fallen a little this year but
there is no expectation of any further movement in the
coming months.
Specifically in the UK, it was noted that trade in the
favoured African species (dominated by sapele in the UK)
was affected by the COVID-19 in the second quarter but
has recovered well and is now at normal levels. The UK is
¡°well stocked but not overstocked¡± in African hardwoods.
However, sapele is currently being traded at unsustainable
price levels, below replacement cost.
It was emphasised that the UK is now strongly focused on
FSC certified material from Africa. However, prospects
for increased supply of FSC certified wood from Africa
are limited, it being noted that there is ¡°no sign of an
increase [in FSC certified forest area] in Africa ¨C no one is
moving in that direction at all. The fact remains it is
extremely costly¡±.
The best way to increase supply of FSC certified wood
from Africa lies in broadening the range of utilised
species. However, it was also noted that to date generally
the UK has been less inclined to use non-traditional
species compared to continental European countries.
Several ¡°lesser known species¡± from Africa that may be of
future interest to UK buyers were mentioned during
discussion including: tali ¡°a dense species, suitable for
external applications¡±; bosse ¡°well used in France for
general joinery¡±; and kosipo ¡°often thought of as heavy
and difficult to machine ¨C but wood of better quality is
now available¡±.
Supplies of Brazilian hardwood tightening but prices
remain competitive in Europe
Turning to South America, the LHC was informed that
supplies of tropical sawnwood and hardwood decking in
Brazil are also tighter than usual at this time of year during
the dry season.
Typically, the rainy season in the Brazilian Amazon
finishes in June and July but it has lingered on for longer
than usual with rain continuing in some areas, impeding
logging. COVID-19 is also spreading in rural areas in
Brazil acting as a further brake on harvesting and milling
operations. Unlike in previous years, Brazilian hardwood
mills are now less likely to make unsolicited offers to
overseas customers.
Continued weakness of the Brazilian real against other
currencies has meant that prices are still competitive on
international markets. However, the weak real together
with COVID-19 related impacts on trade has also meant
that Brazil is importing less. This has greatly reduced
availability of containers and pushed up freight rates for
shipments out of Brazil.
Firm demand for wood for exterior applications in both the
US and Europe during the lockdown period is helping to
put a floor under Brazilian hardwood prices. Demand for
the cheaper hardwood species is also currently quite strong
in Brazil¡¯s domestic market.
US importers were heavily stocked in Brazilian sawnwood
going into the COVID-19 period and they have been
discounting prices for onward sales in the US. At present
US importers are not buying in new stocks of Brazilian
hardwood in large volumes because of uncertainty
surrounding the future development of demand.
Most imports of hardwood from Brazil comprise wood for
exterior applications, although some wood for interior
joinery is purchased in continental Europe, notably France.
There has been shift in continental Europe away from ipe
in favour of cumaru. In the UK, cumaru is also now
favoured for outdoor construction, and less often ipe,
massaranduba and garapa.
Enquiries for FSC certified hardwood from Brazil are
rising in Europe. Demand in the UK for hardwood from
Brazil is now almost exclusively FSC. This trend is
encouraged not only by EUTR due diligence requirements
but also by the fact that price premiums for FSC certified
Brazilian tropical hardwood are less than in previous
years.
The granting of concession contracts for reduced impact
logging of larger areas of publicly owned forest by Federal
and State authorities, a policy progressively extended in
Brazil since 2008, also offers potential to increase supply
of FSC certified tropical wood. Some of the tropical forest
concession areas are large and capable of producing a
large volume of timber on a sustainable basis.
However, according to comments made at the LHC
meeting, there are also significant economic constraints to
FSC certification in tropical forest concessions in Brazil.
The forests are extremely diverse offering only a limited
volume of the most commercially valuable species and a
large volume of secondary species.
The premiums achievable on the sale of FSC certified
volumes of the commercially valuable species are
insufficient to offset the certification costs in the absence
of any premium for certification of the much larger
volume of secondary species.
For other South American countries, the LHC meeting
heard that their overall competitiveness in relation to
Brazil is impaired due to the weakness of the Brazilian
currency. In Guyana, despite COVID-19 related
restrictions, harvesting and production levels are near
normal for this time of year. However, in the context of
Guyana, ¡°normal¡± still implies slow and quite restricted.
In Peru, the harvest season was truncated due to COVID-
19, although some suppliers have managed to maintain
production at levels not far short of previous years. FSC
certified material is also often easier to source from Peru
than Brazil, although Peruvian suppliers are currently
struggling to compete on price.
On Malaysian hardwoods, the LHC heard that UK and EU
imports of Malaysian meranti are well down on previous
years in 2020. In part this is supply related, with shippers
telling UK importers that there has been a particularly wet
rainy season and many reports of mill closures in the face
of the pandemic.
There has also been a dramatic increase in freight rates to
European ports from South East Asia, a trend expected to
continue for the rest of the year. Carriers are operating the
route on severely reduced capacity in response to the
COVID-19 pandemic, with numerous blank sailings, and
are expected to only slowly increase capacity as demand
and trade volumes rise.
COVID-19 delays long-anticipated European oak
supply crunch
In relation to European hardwoods, LHC members were
reminded that at the start of the year, before the effects of
the COVID-19 pandemic were felt, demand for European
oak had picked up strongly.
While the signs were encouraging on the demand side,
there were concerns about mounting supply problems for
prime grade European oak, particularly in wider and
longer specifications. This is a problem that has been
building for some time as supply of the best quality
European oak logs has been falling for the last 10 to 15
years.
As the seriousness of the pandemic became clear in the
second quarter of the year, there was severe supply
disruption of the prime grades of European sawn oak
favoured in the UK as it became increasingly difficult to
shift material out of Croatia and Italy.
The profitability of European oak suppliers was also hit
hard by a sharp decrease in demand for the lower grades in
China and Vietnam in the first half of the year.
As a result, prices for lower grades of European oak have
been falling while mills have compensated by pushing up
prices for prime grades.
However, the sharp slowdown in demand during the
COVID-19 lockdown period has also delayed the supply
crunch for European oak. Despite hugely challenging
conditions, European oak traders managed to overcome
the immediate logistical problems, co-operating to amend
delivery schedules and to balance available supply
reasonably well with wildly fluctuating demand.
There is now no immediate expectation of significant
supply problems for European oak this year, although
buyers will be keeping a wary eye on harvesting levels
during the next winter logging season which may yet be
disrupted.
Demand for European oak in the UK is now picking up in
the third quarter as joinery businesses are returning to
normal levels. There is particularly good UK demand for
thinner stock of European oak which may be a response to
shortages in supply of equivalent American white oak
specifications.
There was speculation at the LHC meeting that European
oak suppliers may start insisting that UK buyers take a
proportion of lower grade oak to secure supplies of prime
grade, as has been the case in previous years when demand
for lower grade oak was weak. However, as things stand
with demand still quite weak, the feeling overall was that
producers do not yet have enough leverage to require this
of their customers.
On European beech, LHC members noted that, even more
so than for oak, there is a continuing problem of very
weak demand for lower grade material. However, there are
some more positive signals of returning demand for beech
in Egypt and elsewhere in the Middle East.
American red oak makes inroads into European market
The LHC discussion on American hardwoods highlighted
the very challenging market conditions that have emerged
in the last 18 months.
The American hardwood industry was hit first by the
introduction of swingeing duties on imports into China
during the US-China trade dispute, which led to a sharp
decrease in US hardwood exports in 2019. This has been
followed by another sharp downturn in export sales during
the pandemic.
In the US domestic market, house starts have remained
quite strong this year, propping up demand for hardwood
in the cabinets, flooring and mouldings sectors. However,
industrial markets for American hardwoods ¨C such as for
gas/oil field board roads, railroad ties and pallets - which
have become increasingly important for US hardwood
mills in recent years, fell sharply in March and April.
The US hardwood industry reacted quickly to falling
demand this year by slowing production. However, the
impact has varied widely between species. Red oak kiln
dried sawn lumber is still available at prices around 20%
less than those prevailing in 2018 before the effects of the
US-China trade dispute became apparent. In contrast,
availability of white oak kiln dried lumber is very limited
and prices are nearly 60% greater than in 2018.
This situation has contributed to red oak making more
inroads into the European and UK market this year,
although it is still only a relatively small share compared
to white oak.
LHC members were advised that supply of American
white oak will likely remain very tight for the remainder
of this year. This is particularly true of thicker sizes which
require longer in the kilns encouraging producers to focus
more on thinner stock where turnover is quicker.
Prices are quite firm for higher grades of sawn walnut and
tulipwood, the other key American hardwood commodities
sold into Europe. However, prices are softening for lower
grades. Supply is a problem, with some specifications of
both species becoming harder to fulfil since the start of the
pandemic.
Freight rates on transatlantic routes are known for their
robustness, a contrast to the volatility often seen on the
transpacific and Asia-Europe routes, but they are now
coming under intense pressure as trade volume has fallen.
Transatlantic freight rates are falling and are now about
10% down on 12 months ago, but there are also a lot of
blank sailings in response to the low demand and it can be
difficult to get bookings out of some US ports.
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