Timber – current supply and demand

Australia’s timber supplies have been falling for several years, generating longer lead times on orders and threatening to affect the schedules and costs of building works over coming years. JOHN POWER reports.

Timber is a raw commodity that also has a tendency to hit raw nerves.

Supply these days is a truly international enterprise, subject to complex fluctuations in global building and construction activity, a range of tight and loose regulatory and environmental protections in different countries, and all the predictable
headaches attached to an industry that relies on a resource that takes several decades to mature.

In an economy that prioritises swift returns on investment, clear-cut governmental policy and linear scales of demand, no wonder landowners have turned their attention to alpacas rather than tree plantations.

A recent government report1 shows that only 1,400 hectares of new plantations were established in Australia in 2015-16, compared with more than 78,000 hectares 10 years earlier. Nevertheless, local demand for timber has grown steadily in response to solid building activity since the GFC, hence our growing dependence on imports.

And therein lies the problem: while global supplies to Australia were plentiful and relatively affordable immediately after the GFC, these global markets (particularly the US) have since recovered, raising prices and drawing down reserves filtering through to smaller markets like ours.

‘Stay calm’, says industry
While Australia grapples with the right regulatory framework to encourage new plantations – a necessary element of any long-term solution – both suppliers and timber retailers have roles to play to mitigate the effects of current supply shortages.

One timber supplier that has shown great leadership on this issue is Simmonds Lumber (www.simmondslumber.com.au), which has been willing to share its direct experiences of the market with our readers.

Let us look at the national supply picture in greater detail, because timber shortages vary between states.

According to Jacinta Colley, Simmonds Lumber’s National Account Manager, Victoria, is certainly experiencing high levels of demand, with major truss plants turning over incredible volumes.

“Even if no more houses were sold for the rest of the year, these plants would still have enough work for another 12 months,” Jacinta says.

In New South Wales, however, demand is slowing after coming off a high.

“It is possible that it may have priced itself out of the market in the short term,” she says.

“Queensland is working through an influx of townhouses and unit developments, but work is certainly out there on the Sunshine and Gold Coasts.”

Overall, Jacinta adds, shortages are beginning to affect actual industry practices.

“What we are seeing is that instead of cutting 27-year-old logs, we are now cutting 24-year-old old logs, which is certainly ahead of the plan and in turn makes bigger board sizes harder to get.”

Species in shortest supply are: Merbau (driven by supply and demand from Indonesia), Blackbutt (controlled by the State Governments), and Pine framing.

Industry cooperation
Despite these harsh realities in the field, Jacinta says local retail markets and their suppliers can take positive collaborative steps to improve supply chain transparency and relieve unnecessary pressures.

As Jacinta observes, one obvious unwanted pressure aggravating supply shortages is stockpiling, whereby retailers and builders order surplus stock to guard against personal shortages in the longer term. Not only does stockpiling place additional strain on supply and energise self-fulfilling prophecies of doom, but it also distorts true market conditions.

“The retail sector should/needs to be more flexible in the products [they handle] and the length that they can take,” Jacinta advises. “They also should be planning their orders, forecasting any forward orders from their customers to assist with their supply. Going forward, if the retailer doesn’t start to do this, then they will find it extremely difficult to get that ‘just in time’ service from any supplier.”

Certainly, there is great incentive for timber retailers and suppliers to refine their communications and achieve better outcomes for all. Competition from other sectors such as the steel industry serves as a perpetual reminder that the timber industry cannot be complacent.

“There is no denying that steel manufacturing is growing at a rapid rate in Australia, with some project builders even importing their own steel frames and trusses,” Jacinta warns. “Our research tells us that steel accounts for approximately 18 percent nationally of all framing and is continuing to gain traction. Price rises in timber have not helped this fact, as F&T (Frame and Truss) plants are forced to lock in pricing with project builders for a minimum of six months and steel contract pricing can be held at times for three years.”

Adaption on show
Another way of relieving some of the pressure on raw timber supplies is to use technology to widen the range of useful timber resources.

The Australian timber market, representing both locally grown and imported product, has always been quick to adapt to changing conditions.

Good examples of adaptation are apparent in the massive Engineered Wood Products (EWP) sector, where new manufacturing processes are creating high-quality products using discarded, undersized, non-traditional and/or juvenile timber resources. Markets are diverse, covering hardwood and softwood LVL (Laminated Veneer Lumber), CLT (Cross Laminated Timber) and Glulam (Glued Laminated Timber) products, plus other composite sections for structural components in building construction.

How big is the EWP sector in Australia?
Kevin Ezard, Director, Frame Australia Conference and Exhibition (www.frameaustralia.com), and an authority on EWP innovation, says the EWP market is substantial and on track for solid expansion in years to come.

“A Market Development and Marketing Plan that I prepared for FWPA (Forest & Wood Products Australia) in 2016 included a projection (over five years) for a 10 per cent market share for timber in mid-rise construction, which would provide a market opportunity of $1.38 billion per year for the supply of prefabricated and/or manufactured structural timber and engineered wood products,” he says. “That equates to 552,000 cubic metres of timber framing, and 184,000 cubic metres of engineered/mass timber per year. At this stage I am confident these estimates are on track provided the supply chain can expand to meet these levels of supply volumes.”

In relation to supply issues, Kevin agrees that local plantation resources need to expand to reduce our reliance on imports. In addition, he notes that some exported material might be better utilized at home for local EWP production.

“My understanding is that large quantities of lower-grade wood currently being exported to China and other Asian countries may be better utilised for manufacturing within Australia.”

As for long-term trends, Kevin says he believes recent growth in the use of engineered wood is “the tip of an iceberg emerging”, as timber construction is lower cost and faster compared to traditional materials.

Peaks and troughs
While supply shortages may appear to be chronic and incurable, Jacinta cautions that demand can be as fickle as supply.

“The shortages may not be as big as we think,” she explains. “The market seems to be cooling down and demand may drop and we may end up with an oversupply – undersupply is often followed very fast by an oversupply.”

Of course, a hypothetical oversupply would carry its own challenges, most notably in relation to satisfactory returns for plantation owners! As with most industry practices, a longterm balance based on more stable policy directions would help smooth out peaks and troughs and, hopefully, encourage more confidence in plantation activity for future generations.

Footnote
1. Australia’s Forests at a Glance 2017, Department of Agriculture & Water Resources, 2017.