|
Report from
Europe
Demand has surged - prices have hit
new highs
It¡¯s been six months plus of extremes and superlatives in
the European sawn hardwood sector. Importers,
distributors and merchants say the trading environment has
been like nothing they¡¯ve experienced during decades in
the business.
Demand has climbed across key markets. Freight rates
have reached unprecedented levels. Supply has become
exceptionally tight and lead times have stretched from
sources globally. Prices have consequently hit the heights,
while margins are variously described as good to
extremely good.
¡°It¡¯s been a challenging trading period, in terms of
obtaining supply, operating a managed volume sales
system so we can service as many customers as possible
and keeping up with shipping costs hitting stratospheric
levels,¡± said one importer.
¡°But if you didn¡¯t make money in the hardwood trade over
the last six to nine months, there¡¯s something wrong with
your business model!¡±
At the start of September, traders were detecting the
energy going out of the market to a degree with rising
nervousness among customers about committing to current
high prices in case they were about to peak.
However, while some species may be set for a sharper
price downswing than others in coming months, the
consensus was that the overall market, at most, is set for a
gradual adjustment to lower levels of growth and
consolidation rather than any marked reversal.
After slumping in the first and second quarter of 2020
during the first pandemic lockdowns, European hardwood
consumption is reported to have started to recover towards
the end of May last year.
The next 12 months saw a pretty continuous upward
curve, with May and June 2021 proving particularly
frenetic. A key demand driver across the continent and in
the UK has been the boom in home improvement,
refurbishment and DIY markets.
¡°Being stuck at home in lockdown, isolation and on
furlough, consumers have been prompted to improve
houses and gardens ¨C and they¡¯ve got the money as they
haven¡¯t been spending on holidays and other leisure
activities,¡± said an importer-distributor.
¡°There¡¯s also been significant growth in home and garden
office construction, with the expectation that increased
remote working will be a permanent fixture, even postpandemic.¡±
¡°We saw particular growth in sales of hardwood cladding
destined for garden buildings, and the decking to go with
it, as householders turned properties into live/work
spaces,¡± said a merchant. ¡°Sleepers and other hardwood
garden products sold strongly too.¡±
This repair, maintenance and improvement market (RMI),
in particular, is where hardwood businesses are now
seeing some cooling off.
¡°European consumers are finally able to take vacations
and go out as covid travel and social distancing restrictions
are relaxed, so there¡¯s less disposable income, plus more
are back at work, with less time for DIY projects,¡± said an
importer. ¡°But we¡¯re not seeing this business dry up
overnight. Our RMI customers still report pretty good
order books.¡±
Building sector demand also picked up as lockdown
restrictions wound down. It was given a further boost by
governments across Europe seeing construction as a vital
engine for jump starting stalling Covid-hit economies,
supporting it with spending on public projects and fiscal
stimulus measures.
Some importers report this sector also losing some
momentum late summer/early autumn this year. ¡°Builders
are facing rising prices and shortages across all raw
materials and some land banks are deferring development
projects, presumably to wait for supply to improve,¡± said
one.
¡°If they can¡¯t get the steel or bricks or concrete, even
where they can source the wood, some builders are also
delaying buying to see if prices stabilize or come down.¡±
Again, however, other traders say demand from the
general construction joinery sector is slowing rather than
turning down and window, door and staircase makers are
reported still very busy.
Market analysts also agree that through 2021 as a whole
European construction will have racked up a robust
performance.
According to the latest outlook for its 19-country region
from Euroconstruct, the sector¡¯s volume output will rise
3.8% this year, after last year¡¯s 5.1% contraction.
While it varies from country to country, Euroconstruct
says the rate of building recovery has been faster than
initially expected, underpinned by generally favourable
economic conditions. It predicts most of the losses
resulting from Covid to be recovered and activity to return
to pre-pandemic levels by 2022, with further growth next
year of 3% and 2.1% in 2023.
Distributors report recovery in hardwood demand from
furniture manufacturers too and the hotel and wider
hospitality markets. Some say even shopfitting, which was
devastated in the pandemic, is showing signs of life,
although starting from a very low base.¡±
Adding all these markets together and the generally agreed
figure for volume growth in the European hardwood sector
in 2021 to date is 20%. That, said one importer, returns
business almost to 2019 levels.
Further underlining the level of activity and limited
supply, with mills¡¯ efforts to catch up with demand still
constrained by covid-safe work practices, there has, until
recently, been little customer push-back on rising prices.
¡°They¡¯re busy and need the wood, so they¡¯re paying the
price and paying on time ¨C bad debt has been at all-time
lows,¡± said an importer/distributor.
¡°There may be a bit more caution on price now, but we¡¯re
still finding most customers who decide to shop around
coming back and paying because they can¡¯t get cheaper
elsewhere.¡± Another sign of the times has been widespread
allocation. ¡°Our suppliers are allocating timber to us, so
we¡¯re allocating to customers. It¡¯s less a sales role, more
rationing!¡± said an importer.
Extended lead times for African hardwood
In terms of supply, European importers report African
hardwood producers affected later and less severely by
Covid than other sources. However, pandemic safe
working has increasingly impacted output and lead times
have extended.
Administration has been disrupted too, with delays
reported in securing export documentation.
¡°We¡¯ve also seen hold-ups at the [Cameroon] port of
Douala, with vessels having to use their own cranes as
portside ones have been out of commission due to lack of
maintenance staff,¡± said an importer. ¡°Kribi is also underresourced
and not yet fit for purpose.¡±
Of the lead African species, iroko is currently reported
readily available, but utile described as ¡®very scarce¡¯.
There are differing views on sapele supply. Some
importers say they¡¯re securing sufficient volume, others
report less coming out of the forest.
¡°We¡¯re not sure why ¨C it could be it¡¯s less abundant in
specific areas being harvested, but it¡¯s not an issue isolated
to one country or region,¡± said one importer.
Secondary African species are reported to have gained
some traction through the pandemic period as supply of
main commercial species has tightened. One company
highlighted increased interest in its engineered products in
lesser-used varieties, including kosipo and tali.
European importers report prices increasing across African
hardwoods, but with rises more modest than those seen
from other sources, the main commercial species up an
average 10-15% in the year to date.
Tenfold increase in freight rates
The key topic when it comes to European imports from
Asia remains freight rates. A 40ft container from Malaysia
or Indonesia as late as last autumn cost US$1500 -$2000.
By Q2 2021 importers were being quoted US$15,000-
20,000 and rates have stayed there.
This is attributed mainly to the general disruption to world
trade caused by the pandemic, with a lack of return freight
from western markets to South East Asia and empty
containers stock piling in the wrong locations.
In response, there has been a shift for some timber
products, such as plywood and sawn timber, to break bulk.
But shippers have capitalised and put rates up here too. It¡¯s
also not proved a straightforward solution.
¡°It takes longer than shipping by container and is more
complex to organise. You have to have the volume to
make it viable, goods are more prone to damage and
unloading is a time-consuming process,¡± said an importer.
They added that the breakbulk vessel Konya from
Malaysia to Rotterdam and London Tilbury this summer
spent weeks discharging at the latter, partly as the port was
so busy, partly because personnel weren¡¯t used to the
work. It was reported to be the first timber breakbulk from
Malaysia into London in 30 years.
¡°Breakbulk also just doesn¡¯t work for more vulnerable and
valuable goods, like flooring,¡± said one importer. ¡°We¡¯ve
just had to pay the container rate and hope customers will
cover the cost. Asian timber price rises this year average
8-10%. Freight has pushed that to 30%.¡±
No-one sees container rates changing significantly in the
near future and, despite the issues with the Konya, another
breakbulk vessel is due to set sail for continental Europe
and the UK in October.
¡°Christmas goods traffic from China will now further
underpin container prices, so we see little sign of softening
for the next six to eight months,¡± said an importer. ¡°Talk is
also now that rates have historically been too low and that,
even when they come down, it won¡¯t be to former levels.¡±
Importing from Brazil is also proving a greater challenge.
¡°Prices are sky high, driven up by US and wider global
demand and also the serious Covid situation, which has
led to personnel shortages and restricted mills¡¯ output,¡±
said an importer.
¡°The combination of the pandemic and political turmoil
has also hit administration and it¡¯s become increasingly
difficult to secure export licences.¡±
Declining availability of US hardwood for Europe
US hardwood supply to Europe in the last six to nine
months was described by importers as turbulent.
According to Judd Johnson, editor of the Hardwood
Market Report, quoted in a recent article in the UK Timber
Trades Journal, the American hardwood sector entered the
pandemic in a ¡®diminished state¡¯.
It was hit first by tariffs in the US-China trade war and
subsequently a general weakening of Chinese demand
when trade relations improved. Mill capacity was then
significantly further reduced by Covid absenteeism and
what some saw as the government ¡®paycheque protection
programme¡¯ a disincentive for employees to return to
work.
The widely broadcast result has been sharp declines in
availability and sharp increases in price. At one point this
summer, a UK importer described 4 quarter American
white oak as ¡®vanishingly scarce¡¯ and forward order
availability ¡®non-existent¡¯. The price had doubled over the
year, as had that for tulipwood, while walnut was up 65-
70%, maple 30% and ash 40-50%. Availability was not
helped by some hardwood mills switching to softwood to
capitalise on booming demand from US construction.
The situation does now seem to be easing, with more
¡®offers on the table and timber in the pipeline¡¯. ¡°It may
partly be a case of timber drying quicker in the summer
and so more coming available, but mills do seem to be
keeping pace better with demand, and we hear some of
those which switched to softwood have switched back
again as that business has softened,¡± said an importer.
Despite this, little change is expected in US prices until
sometime into next year.
Switching to European hardwoods
Given the price and supply situation in US hardwoods,
there has been some switching in Europe to European
species, notably oak.
Due to this and rising demand elsewhere, plus it is
reported the decision of the Croatian authorities to put
higher oak grades from state forests to auction rather than
sell be tender, prices are up 15-25% this year, with further
3-5% rises anticipated in coming quarters.
European oak availability is also reported to have declined
recently and concerns were expressed about longer term
supply given the prospect of a Russian log export ban in
2022.
¡°China buys such huge volumes of Russian logs of all
varieties,¡± said an importer. ¡°Unless it can cut a bilateral
deal with Russia, or Chinese companies can build
sawmills there, it¡¯s going to be looking to other sources,
and that includes Europe.¡±
European beech is also reported to be up in price 10% in
the year to date and one importer said they were
experiencing longer lead times. One factor seems to be
customers substituting beech for tulipwood due to the
latter¡¯s high price.
| 
