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Positive environmental credentials of forestry promise buoyant future

The 2007 UPM Tilhill Timber Bulletin, out today 22 May 2007, presents the most positive picture of the UK timber market that has been seen for more than ten years.

The indications are that this is not just a brief surge, but a significant market upturn that should hold for some time as the buoyant timber market is reflected across the globe.

“The key to the future success of the timber industry is to allow all industry players to benefit from this positive trend and use it as an opportunity to enhance and underpin the infrastructure that supports the industry. This includes growers, contractors, hauliers and processors,” said Steve Lavery, Managing Director, UPM Tilhill. “In earlier Timber Bulletins we predicted that a major factor in increasing demand for the lower value products would be energy wood. We can see that the new market for energy wood, is indeed an additional and important benefit to our industry. New products to a very different customer base will help to prove the positive environmental credentials of forestry in the UK. “

Now in its sixth year the UPM Tilhill Timber Bulletin, is an analysis of trends and influences on the UK standing coniferous timber sales market and provides an overall interpretation of the forestry industry to benefit growers and managers. The report draws information from published sources and uses the knowledge and expertise of UPM Tilhill.

This year, in addition to the Forestry Commission timber price indices, the Bulletin includes market trend analysis from both the state and private sector, and the results of a study into supply and demand of coniferous timber in Scotland and Northern England the results of which will inform the industry and help the development of strategic planning towards sustainable growth.

The Bulletin shows that the continuing trend of falling imports for imported sawn softwood, has presented opportunities for the home grown timber industry as UK production of sawn domestic timber increased over the same period. Apparent consumption of wood products by the UK remains relatively stable. Falling imports are reflected by a 34% increase in the price of imported sawn timber. In the first quarter of 2007 prices stabilised at the highest price seen in eight years of monitoring.
Exchange rates are a critical factor in influencing the price of landed sawn timber and thereby a major driver and influencing factor in the core price paid for round timber in the UK. Despite the weak US dollar, the strengthening Euro over the next 18 months implies stable or rising timber prices.

The Forestry Commission indices for their own sales (September 2005 to September 2006) show the standing sales index over 14% higher than a year ago, while the log index fell by 4%. UPM Tilhill\\\'s market knowledge suggests the index will show a significant upward gradient on both standing sales and logs.

Green log prices increased by 12% in the last nine months. This significant lift partly reflects the increases in sawn timber price which, until recently, has not had much impact on the log price. This delay in market response is the classic rising market time lag before it filters through to the log market. Regional variations show that the greatest range is most apparent in England and Wales with the mean values being slightly lower than Scotland, until the last nine months when prices moved significantly upwards. This can in part be attributed to a reduction of volumes available in Wales, resulting in demand significantly outweighing supply.

The impact on stumpage price is demonstrated with increases in the net return to growers at over 30% for the last three years and 18% during 2006 to mid 2007.

In 2006 the actual price for logs exceeded the forecast with an average increase of 8% and this rate of growth is expected to continue through 2007. Looking further ahead the best case scenario suggests a rate of growth between 5% and 7% pa.

Actual prices for small roundwood in 2006 exceeded the best case forecast with an average increase of 5% against the forecast of 1%, with larger than expected increases across most small roundwood categories. Looking forward, the best case scenario for small roundwood anticipates price pressure from the bioenergy market with the Shotton Paper CHP boiler in full production, the E.ON and SembCorp plants under construction and due to commission in 2006, the announced UPM build at Caledonian Paper, together with many others under review. With continued pressure on demand for export of small roundwood to Europe and Scandinavia, continued stress on the price is almost certain.

From 2007 to 2011 demand from existing plants including the wood energy plants and exported roundwood are roughly in balance with supply, thereafter availability gradually exceeds demand, implying the need for additional capacity and new markets. Investment in new plants on greenfield sites is forecast from 2008 with a significant potential step up in 2012.

If existing planned developments go ahead in 2012 and new energy plants currently in the planning stage are built then there will be a serious under supply of small roundwood which may threaten the supply of logs greater than 16cm td into sawmills, though this potential shift in supply chain seems improbable. Importantly, energy markets can offset wood fuel supplies with other products, such as short rotation coppice, forest residues and emerging reclaimed timber streams, thus reducing the impact on UK roundwood sources.

“It would appear in general that the supply demand balance for log and timber grades will remain tight for the foreseeable future, implying further growth on stumpage prices,” added Steve Lavery. “The outlook therefore, looks set for continued buoyancy in the UK market with increasing opportunities for capacity growth. Long may it continue!”

For a copy of the UPM Tilhill Timber Bulletin or for general enquiries, contact UPM Tilhill on 01786 435000, or email info@upm-tilhill.com|

Press for further information contact:
Jackie Brown, Public Relations Adviser on tel: 01787 221830 / mob: 0779 297 0919 / email: jackie@jackiebrownpr.org.uk

UPM Tilhill Marketing. May 2007