A positive market outlook – despite reduced growth

timber forest

The market outlook for the timber industry remains strong despite concerns over rising inflation and reduced growth. Nick Boulton, head of technical and trade at Timber Development UK, explains.

The timber industry experienced an interesting start to 2022 following the Russian invasion of Ukraine, and Timber Development UK’s latest market statement shows that the ongoing conflict is having several clear economic impacts. The supply of raw materials has become more challenging, while the rising price of energy and its resulting impact on consumer confidence and spending is beginning to be reflected in industry forecasts for the year ahead. An immediate consequence of the Russia-Ukraine conflict in early 2022 was the widespread call to reduce and ultimately end Russian timber imports. We expect indirect Russian imports to be close to zero in mid- to end-Q3 this year as the remaining material is flushed out of the European supply chain.

Timber supplies

The volume of timber imported by the UK during Q1 2022 was 2.5 million m3 – nearly half a million m3 behind the record imports of Q1 2021. However, this was still a higher volume than that seen in either 2018 or 2019. In fact, January, February and March 2022 all saw volumes increase over the previous month, reflecting strong construction demand. By April, import figures began to decline as demand slowed again. The invasion of Ukraine by Russia, inflation, downgrades to consumer confidence, and political instability in the UK are all beginning to have an impact on the market – which will likely begin to be strongly reflected in the overall supply picture in Q3 and Q4 2022.

volume of timber supplies chart

Timber supplies by volume into the UK between January 2016 and March 2022

So, are there likely to be more timber shortages in the future?

Historic market data tells us that the supply of available structural timber since 2008 has been very stable and growing steadily year on year with no shortages. This stability is hardly surprising for a product that has a predictable, but minimum sustainable growth cycle of 40 years. What sustainable timber will always struggle to do is meet sudden and substantial jumps in material demand, like the ones we saw in 2020/2021.

We believe that, outside of the lack of availability of Birch Plywood and Siberian Larch experienced as a result of the ban on Russian timber imports, further timber material shortages are unlikely unless we see events similar to 2020’s extraordinary circumstances and COVID lockdowns.

monthly all work index chartDemand issues

Construction output reached a record high in Q1 2022, but this is unlikely to continue through the rest of the year due to a number of pressures, the most significant of which is inflation, which is at its highest rate for 40 years. New housing and repair, maintenance and improvement (RMI) work were at the heart of this demand. But the current cost-of-living crisis and a drop in consumer and business confidence is now expected to reduce demand for this type of work and, therefore, key materials often used in these projects, such as timber.

The Summer Forecast from the Construction Products Association (CPA) believes construction output will rise by 2.5% in 2022 and 1.6% in 2023 as strong growth in warehouses and major infrastructure projects offsets a slowdown in private housing and RMI – key markets for timber products. Private housing output is expected to rise by 1% across all of 2022 but remain flat in 2023, while private RMI is expected to fall by 3% this year and 4% next. This latest forecast has been revised down due to the lagged impact of rising inflation.

construction output chart

Source ONS, Construction Products Association

Near-term activity remains robust

The construction industry faces many headwinds over the next 12-18 months. On the positive side, construction activity currently remains robust and output is expected to remain strong in the near-term.

On the negative side, however, the increasing number of supply-side risks and their potential impact may lead to increasing uncertainty over in the next three years. As a result, increasing inflation expectations and the consequent effects on falling real wages, consumer confidence and spending cannot be ignored.

Going forward, we expect the price of timber to fare better than competing materials such as concrete and steel, both of which require significant energy use during production. But we are highly unlikely to see timber prices returning to 2019 levels. Historic data tells us that prices for structural softwoods were stable from 2008 until 2020 and there are no factors to suggest that they will not be stable in the future – just at a higher price point.

Despite this negative economic picture, the timber industry remains strong. One key competitive advantage of timber products is that they are relatively low-energy to produce in comparison to carbon-intensive and high-energy products such as cement or steel, which are likely to face significant price inflation going forward.