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Wood Products Prices in The UK & Holland

01-15th October 2009

Report from Europe, the UK and Russia


European buying remains slow
Trade contacts report continuing low levels of tropical
hardwood forward buying in the EU at the end of the third
quarter of 2009.

Earlier predictions of significant price rises in the face of
widespread shortages after a long period of slow buying
have yet to be realised. CIF Europe price trends for
tropical hardwood logs and sawn lumber seem now to be
trending upwards, but at present this seems more due to
increases in freight rate and exchange rate fluctuations
than to any sharp shift in the balance of supply and
demand.

There is some evidence of gaps opening up in stocks of
certain special assortments, but generally there still seems
to be enough material in stock in Europe to satisfy current
low levels of consumption.

There continues to be a lot of cross-trading between
European companies to fill gaps in stocks as they arise,
with little interest in speculative forward purchases. This
applies both to products destined for the joinery sector and
for the garden decking sector.

The 2009 season for decking products in Europe is now
over and considerable uncertainty over prospects for the
2010 season has led to reluctance on the part of importers
to import so as to rebuild stocks.

Against this background, tropical hardwood shippers
continue to maintain very low levels of production so that
lead times on forward orders remain extended for many
products. Lead times of over 4 months can be expected for
orders of African sawn lumber.

Imports of tropical hardwood from Brazil are, these days,
also subject to very significant delays. As is typical, Asian
hardwoods are generally more readily available for prompt
shipment ĘC although production in this region is also
reported to be very low.

Construction outlook in the US and EU
One piece of good news relating to the US wood market
emerged early on in the UNECE Timber Committee
Market Discussions held in Geneva in mid October. Dr
Eric Hansen of Oregon State University, quoting data
provided by APA (the American panel products
association) suggested that US housing starts, which fell
from over 900,000 in 2008 to a forecast 560,000 in 2009,
are expected to rebound strongly to again reach close to 1
million by 2011.

However Hansení»s comments did not reflect so well on
the EU where, he said, í░the housing bubble has been far
greater [than in the U.S.]í▒.

This gloomy conclusion with respect to European
construction activity accords with the conclusions of the
Euroconstruct conference held over the summer in the EU.

This conference suggested that construction output across
the 19 countries in the Euroconstruct network is projected
to fall by 7.5% this year following a 3.1% decline in 2008.

EU construction sector output is projected to fall by a
further 1% in 2010. After three years of decline, a very
slight recovery is only expected in 2011. The worst
performers over the next two years (2009-2010) are
expected to be Ireland, where the industry is projected to
shrink in size by 51%, Spain (-25%), Finland (-21%) and
Portugal (-18%).

Only Switzerland (+2.3%), Germany (+1.1%) and Sweden
(+0.5%) are expected to record growth over this period.

Euroconstruct forecasts for the market as a whole were
revised downwards in the summer compared with the
forecasts made last December due to the worsening global
economic environment and continuing uncertainty
regarding the approaches being taken by banks and
governments to deal with improperly functioning credit
markets.

Regulations to remove illegal wood from trade
Insights into the impact of regulations and laws in the EU
and US designed to remove illegal wood from trade
emerged during two recent meetings in Geneva.

The International Timber Trade Federation (ITTF)
meeting, hosted by The Forest Trust on 8-9 October and
attended by representatives of trade associations from
around the world, was convened with the aim of
discussing the trade response to these measures. These
issues also generated a lot of interest during the opening
session of the Annual UNECE Timber Committee Market
Discussions on 13 October.

A commentary on the trade impact of the May 2008
amendment to the US Lacey Act was provided at the ITTF
meeting by Jameson French on behalf of the US
Hardwood Federation and American Hardwood Export
Council.

Jameson French noted that í░there has been a strong and
immediate reaction amongst U.S. retailersí▒ that fear the
severe legal sanctions associated with the Lacey Act
amendment.

Even if purchased in good faith and efforts have been
made to ensure legality, a buyer in the U.S. would have to
forfeit any goods that are subsequently found to be from
an illegal source.

This sanction alone is a huge incentive to U.S. buyers to
accurately verify their supply lines. It is not unusual for
US wood and furniture importers to take delivery of
individual shipments worth several million dollars and
their loss could quickly lead to severe financial losses.

Many U.S. wood and furniture importing companies are
now very actively promoting the measures they have in
place to ensure their compliance with the Lacey Act. They
are also now putting considerable pressure on their
overseas suppliers to ensure that there is a low risk of any
wood raw material being illegally sourced.

However Mr.French also commented that the Lacey Act
amendment has caused considerable confusion amongst
overseas suppliers to the US. For example, many wood
product manufacturers in China and South East Asia have
the impression that the law amounts to a mandatory
requirement to source only FSC certified wood. This is not
the case.

The law makes no assumptions and provides no guidance
on the measures that importers must take to show due care
that wood is from a legal source. The new declaration
requirement does not require the importer to have all of
the information necessary to be certain of the legal origin
of the wood.

EU proposals
The ITTF and UNECE Timber Committee meetings in
Geneva also provided details of the current status of EU
proposals to impose í░due diligenceí▒ requirements on
operators that í░first placeí▒ timber on the European market.

This legislation was proposed by the European
Commission in October 2008 and is now being considered
for adoption by the European Council of Ministers and
European Parliament.

There is much discussion over the exact details of this law,
particularly with respect to the companies within the EU
that should be subject to the due diligence requirements
and the scope and content of the corporate risk
management procedures required.

Some EU Member States, supported by members of the
EU Parliament and some wood trade associations, also
advocate that the requirements for due diligence systems
should be combined with a Lacey-style prohibition on
trade in illegal wood within the EU.

Expectations are high that the European Council will reach
a final position on the due diligence legislation by mid
December with a view to introduction sometime during
2010. Linkage of the regulation to other measures
targeting deforestation within the climate change regime
has provided powerful impetus to these negotiations
within the EU.


Abbreviations

LM       Loyale Merchant, a grade of log parcel  Cu.m         Cubic Metre
QS        Qualite Superieure    Koku         0.278 Cu.m or 120BF
CI          Choix Industriel                                                       FFR           French Franc
CE         Choix Economique                                                        SQ              Sawmill Quality
CS         Choix Supplimentaire      SSQ            Select Sawmill Quality
FOB      Free-on-Board     FAS            Sawnwood Grade First and
KD        Kiln Dry                               Second 
AD        Air Dry        WBP           Water and Boil Proof
Boule    A Log Sawn Through and Through MR              Moisture Resistant
              the boards from one log are bundled                      pc         per piece      
              together                      ea                each      
BB/CC  Grade B faced and Grade C backed MBF           1000 Board Feet          
              Plywood   MDF           Medium Density Fibreboard
BF        Board Foot F.CFA         CFA Franc        
Sq.Ft     Square Foot              Price has moved up or down

Source: ITTO'  Tropical Timber Market Report

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