The chancellor’s autumn budget has just been delivered and the wind has turned to the south-east and winter feels as if it could happen. So with winter soon upon us, the market is responding.
The demand for timber is sweeping the market. There is no sector that is untouched by the current situation. The volumes being asked for, are driving the volumes coming up for offer. Every price impacted and warmed by the unrelenting appetite for fibre from biomass projects. Driven by conscientious log buyers a traditional hardening on price has crept into the sawlog market.
Endeavouring to cap the summer seasonal highs with 10% reductions is a challenge in a market where there are few logs to be had. Demand reflects the lively order books with sawmills still under pressure to secure material. There are some buyers approaching growers to source extra timber by finding and capturing significant off-market volumes. It is apparent that there are wood processors who are well bought yet are wanting to keep faith with suppliers, so where volume exists they are not wanting to turn off the wood stream. The lower volume production units have historically always been able to pay a little more for their timber supplies, but in the face of fierce competition they are concerned at the prices being paid and yet are unable to step out of the supply chain. They do not have the capacity to mitigate the material costs by scaling up their production.
Small roundwood is being sought across every sector with processors aggressively chasing down sources of timber. The particle board market is considerably stressed working under what they consider an inflated pricing structure driven by biomass being bought for prices in excess of £60/tonne. Prices on roundwood are again making the utilisation of high input, low volume yield. So interested owners are drawing additional revenue from the chipping of brash and whole trees primarily because it helps offset costs.
There is also a strong demand for sawn palletwood. The pallet board producers are squeezed by biomass and traditional small roundwood markets on one side, and sawlog top diameters regularly being chased down to 14 centimetres on the other. Round fencing will continue to be in short supply as the existing growing stock predicates a minimal available volume especially across the south where there are few young plantations. Nothing new but it is worth reminding ourselves of the demographics of the national forest resource and the resulting softwood timber volumes. This is borne out by the 25-Year Forecast of Softwood Availability (2016) published by the Forestry Commission’s National Forest Inventory (NFI). This suggests between the years 2017/21 to 2032/37 a 19.14% drop in volume of small roundwood under 16cm top diameter, across Great Britain, including both private and public timber sources. The most marked decline is in England, however the NFI figures show an uplift in the last five years of the period (37/41) when there is predicted to be a small increase.
The sawlog figures for 16-34cm top diameter material make happier reading. Although future technologies will surely improve recovery percentages in sawing processes some of the shortfall in biomass and particle board raw materials will come from increased sawmill production.
There appears to be a mixed response to wood supply. From September some of the private sector estates have their attention taken up by their shooting commitments understandably making it impractical to entertain harvesting companies. Volumes offered through the state forestry organisations and institutional investors is tailing off as the year runs to a close. It has been a good year for growers across all regions so they have no need to empty the basket of next year’s offerings. For those who want one last visit to the market there are still plenty of interested buyers to talk to.
We sit here with the Brexit negotiations looming on the horizon, no-one is clear, the compass is unsteady, so we cannot be sure whether we are seeing the sun rising on a promising new day or setting on a profitable one. There is very little idea what the outcome might finally be. No deal might mean higher prices. The city will decide once they know what they are deciding about. Vital to making sound business decisions is the necessity of having a clear framework to operate in. The Brexit negotiations are everything, as yet we do not have that. The current economic cycle is good, so demand nationally and world-wide remains high. One importer talking on the post-Brexit scenario said, ‘They have it, we need it, they want to sell, business will find a way whatever the initial difficulties are, imports will come in’. If Theresa May does a deal the pound will rise by 10% and the pressure will be back onto sawn prices.
So maybe, sit back, keep alert and chuck a few more logs on the fire, against the cold winds! We are a resilient industry and we play a longer game than most. Brexit will be a distant memory by the time we are cutting down the trees paid for by the modest £60m this government is dedicated on spending to plant them.