Timber price cool off, says Timbertrends

High demand for raw materials has lead to a massive increase in price, according to Nick Moore independent analyst at Timbertrends in a recent report for Gardiner & Theobald.

A generally buoyant world economy coupled with strong growth in the emerging markets, most notably China and India, has substantially increased demand which in turn has lead to rapidly rising energy and raw material costs, including timber. Added to this is the ever-increasing ‘China effect’.

Moore explained in the report: “Many countries suffer the consequences of cheaper Chinese production costs for manufactured timber products, such as plywood. The exports of some Chinese timber-based products has had the effect of devaluing parts of some of the more mature domestic markets in Western Europe.”

This, the report finds, coupled with the high demand for wood raw materials from emerging economies, resurgent demand for sawn timber from Japan, continuing high demand from the world’s largest market the US, and some economically stable European countries has contributed to rising levels of consumption and a rarely seen period of sustained price inflation within the timber industry.

Moore said: “Price deflation has been the norm for many years in the timber industry, where the real inflation adjusted price of timber has resulted in lower revenues per cubic metre.”

What’s more, this has been true for virtually every timber producing country, even Sweden, Europe’s most important producers and the largest supplier of sawn softwood to the UK market.

Increase in demand can explain some of the upturn in prices, but reduced production and shortages of certain materials has also contributed to the recent trend.

Log shortages in Europe, for instance, has placed pressure on sawn production in the Baltic States and neighbouring countries. At the same time some countries such as Finland no longer produce sawn because it is simply unprofitable.

Moore said in the report: “The prognosis for the remainder of 2006 is ‘more of the same’, although the storm clouds over growth in the US, a gradual cooling of the Far Eastern economies and the general uncertainties induced by an increasing ‘volume of noise’ over trade protectionism serves to cast doubt over the longer-term prospect for continued high levels of demand and the accompanying price increases of many timber products."

He pridicts a period of 'cooling' in the timber market in 2006 and 2007. "The trade balance is once again restored to a more equilibrium level of supply and demand," he added.