National Hickman

Our very first report was published back in May 2010, when we were forecasting softwood supply shortages and significant price increases caused by reduced productivity in mills, following the pattern of recession together with a weakening Pound. The report also noted the rising demand for wood as a result of Government incentives to combat climate change through the use of wood as a source of renewable energy in biomass plants, which was a cause for concern.

The July 2010 update reported that UK chipboard producers had raised their prices twice in H1 and would do so again in the second half, and we again highlighted our unease over energy generator subsidy for wood fibre biomass. Brent crude was then just $77 a barrel but forecast to rise as the world economy recovered. Today with the unfolding Middle East protests and Libyan conflict, oil now costs 50% more at $115 a barrel. But when the weaker Pound is factored into the calculation the cost of fuel in the UK has never been higher. Haulage firms are already imposing mandatory fuel surcharges of between 3 and 6%.

We advised in the January update that some softwood prices had moderated slightly from Q4 2010 levels, and without doubt the complex global markets within which we all operate are continuing to influence what the UK is required to pay to secure its supply of raw material.

Some softwood cargoes destined for Middle East customers have inevitably suffered delay and interruption, and on the back of December 2010 weather impacts, some short term spot deals have featured. However, spot deals do not make a market; UK contracts for Q1 and Q2 2011 were fixed last year and now forward prices are beginning to rise as the rebuilding in Japan adds an inevitable and significant influence.

On Monday March 7th 2011 Channel 4 News broadcast an item entitled, “Timber prices up as power plants boost biomass use”. This five minute report highlights the dilemma faced by manufacturers of timber based panel products. You can view this item Here.

Biomass is presently the biggest influence on price and for the foreseeable future all wood based panel products including TG4 chipboard flooring, Medium Density Fibreboard (MDF) and Orientated Strand Board (OSB) will have both availability and price pressures.

All of the UK producers have been forced to apply several price increases between the start of 2011 and today, which cumulatively amount to 20- 30%, and without any doubt more will follow at least on a quarterly basis.

Volume constraints are already a very significant and worrying feature and the importance of secure supply chains should not be underestimated. In the past two years European particle board capacity has reduced by 3.5 million cubic metres and MDF by 650,000 cubic metres as biomass competed for available raw material. This is not a short-term problem and with Government not due to review its subsidy policy until 2013 secure supply will be an increasingly important factor.