Commodity report: Sawn Softwood

Production and Trade

The world market in sawn softwood, which in 1953 had regained its stability after the short-term fluctuations in the previous years, could in 1954 and 1955 be characterized by a relative firmness and by a steadily growing demand. The marked progress in world industrial activity and economic expansion, so manifest in the past years, continued throughout the year 1955 and the first half of 1956; in the latter period, however, a certain tendency of slowing down of the rate of growth became increasingly apparent in a number of countries.

TABLE 1. - PRODUCTION OF SAWN SOFTWOOD (in thousand standards)

Region		1950	1951	1952	1953	1954	1955
Europe		9 590	9 660	8 730	9 100	9 520	9 980
of which:
Finland		875	1 055	750	904	1 030	1 070
Sweden		1 265	1 450	1 275	1 490	1 600	1 700
Norway		358	310	400	360	384	366
Austria		697	694	629	684	804	827
Western Germany		1 709	1 598	1 380	1 275	1 263	1 399
France		655	792	578	556	687	749
Eastern Europe		2 680*	2 520*	2 450*	2 615*	2 561*	2 689*
U.S.S.R.		9 000*	10 000*	11 000*	12 080*	12 550*	13 000*
U.S.A.		15 920	15 050	15 270	14 930	14 790	15 950
Canada		3 436	3 657	3 503	3 636	3 639	3 972
Latin Amer.		1 000*	1 200*	1 106*	1 120*	1 180*	1 250*
of which:
Brazil		560	746	760	717	748	794
Africa		190*	200*	200*	210*	220*	230*
Asia		2 920*	3 030*	3 230*	3 220*	3 220*	3 300*
of which:
Japan		2 457	2 544	2 792	2 771	2 660	2 700
Oceania		360	390	400	390	420	440
WORLD TOTAL		42 420	43 190	43 490	44 690	45 540	48 120
Index (1960= 100)		100	102	103	105	107	113
Index of world industrial production (1960=100)		100	108	111	119	119	131

The production and trade of sawn softwood both profited from the generally favorable economic conditions and developments in most parts of the world in 1955 and reached, in fact, new record levels. World production of sawn softwood in 1955 showed a rise of 5.75 percent from the level of a year earlier; this increase compares rather favorably with the 10 percent increase in total world industrial production from 1954 to 1955 (Table 1). World exports of sawn softwood, on the other hand, showed a rise of 11.3 percent from the level reached in 1954, as against an increase of 7 ½ percent in the total volume of world export trade (Table 2). The relatively greater growth of the volume of world trade in sawn softwood was chiefly due to stock-piling in a number of importing countries in the course of 1955.

TABLE 2. - WORLD EXPORTS OF SAWN SOFTWOOD (in thousand standards)

Region	1950	1951	1952	1953	1954	1955
Europe	2 460	2 740	2 130	2 700	2 900	3 090
U.S.S.R.	180	140	130	240	310	390
North America	2 050	2 220	2 000	1 980	2 380	2 700
Latin America	290	310	220	280	250	330
Africa	7	10	5	7	2	3
Asia	2	100	20	20	20	20
Oceania	7	10	10	10	20	20
WORLD TOTAL	5 000	5 530	4 520	5 240	5 880	6 550
Volume index of world trade in sawn softwood (1960 = 100)	100	111	90	105	118	131
Volume index of total world trade(1960= 100)	100	112	111	118	124	133

One of the salient features of the development of world trade in 1955 was the increase that took place in trade within the most important regions, North America and Europe. The trade between regions, on the other hand, did not show any significant growth from the level in 1954. Exports by European countries to overseas even declined markedly and had to be compensated by increased imports from North America and Brazil, notably with regard to imports by Australia and South

Africa North America alone accounted for more than one half of the total increase of world production of sawn softwood, largely because of the heavier demand brought about by the record level of construction in the U.S.A. in 1955. The same factors made the increase in the volume of exports of sawn softwood from Canada to the U.S.A. in 1955 to account for nearly one half of that in the total world trade. In Europe, the developments on the sawn softwood market in 1955 were primarily marked by the British importers' purchasing for this year; this had in the course of 1955 led to heavy stock accumulation in the United Kingdom and in some other importing countries in Europe, which, following the British example, had purchased for delivery in 1955 more than was apparently justified by current requirements.

At the beginning of 1956, while the North American market continued firm and the Canadian exporters were meeting an unusually heavy demand from the U.S.A., the European market was characterized by an almost complete standstill. Importers in most of the principal importing countries had, in the course of 1955, to face increasing financial commitments as a result of the generally rising landed cost of timber, greater stockholdings and various credit-restricting measures adopted in 1955 by most governments in western Europe. Consequently, it had already been clear well before the end of 1955 that import requirements for the year 1956 were generally going to be lower than a year earlier. In fact, sawmills in the principal exporting countries in Europe were early in reducing their production of sawn softwood for 1956. Consequently, the slow progress made in Europe by the end of 1955 in the sales and purchases for delivery in 1956 was no surprise to anybody in the trade. The early months of 1956, however, brought about a further unexpected delay in the purchasing for this year. The exceptionally cold weather reduced temporarily the consumer demand, particularly in building, and both importers and wholesale merchants found it difficult to reduce their stocks as they are accustomed to do before the shipping season starts. This, together with the increasing financial burden caused by the slow turnover, led the import trade to hope that, by prolonging their cautious attitude and activity in purchasing for the current year remaining slack, exporters might be induced to make at least some price concessions. The result of this policy was a "tug-of-war" between the exporters and the importers as to who could hold out longest.

In the exporting countries, especially in northern Europe, the protracted lull on the market began to cause serious financial difficulties to the smaller sawmills which seemed even willing to accept downward price adjustments if only to accelerate sales. The larger sawmills, on the other hand, generally persevered in their firm attitude, refusing to accept any major changes until the month of May, as a result of the readjusted Soviet export quotations for western Europe.

When the market in April was generally thought to be mature for a revival of sales and purchasing activity, the British Government announced the liberalization of the bulk of its strategic stocks of sawn softwood, some 150,000 standards. The purpose of this decision was very clear: the country, struggling with foreign trade difficulties, had to find ways and means to reduce the import expenditure for 1956. By releasing the strategic stocks for current consumption, the volume of imports otherwise required to meet the 1956 demand, would be reduced correspondingly. It was normal therefore that the British import trade which had been getting ready to proceed in its purchasing for 1956 wanted first to learn the categories and dimensions of sawnwood contained in this unexpected offer before placing any substantial further contracts abroad.

As most other importing countries had, throughout the spring of 1956, been waiting for the British initiative to break the prolonged lull, the long-expected revival of activity was not forthcoming. Only gradually and in relatively small parcels were contracts placed in the principal exporting countries by western European importers in the last months of the spring, and the activity did not show any marked change in the course of the summer of 1956. Under these conditions it appeared rather likely that purchasing in Europe for delivery in this year would continue unusually late into the year, perhaps even close to the end of the main shipping season. Of all the principal importing countries, the United Kingdom seemed at the beginning of August to have secured the largest part, if not the totality, of its import requirements for 1956, while other countries still had considerable further purchasing to accomplish in order to meet their total requirements for the year. Of the exporting countries, on the other hand, the Soviet Union seemed to have sold the greater part of its estimated export availabilities to western Europe for 1956 - not quite 300,000 standards - while the northern European countries and Austria still had considerable quantities available, wherewith to meet demand during the rest of the year. By and large, however, the European supply/demand situation appeared balanced for the year as a whole. The absence of important Canadian sales to western Europe, caused by high ocean freight rates and by the strong demand for Canadian sawnwood from the U.S.A., made the prospects of further selling somewhat brighter to those European exporters who still had quantities to dispose of.

Consumption and stocks

The world consumption of sawn softwood in 1955 appears to have been some 5 percent higher than in the previous year. The increase of consumption in the U.S.A. caused chiefly by the building boom in 1955 alone accounted for about 60 percent of the increase of total world consumption. In Europe, the actual consumption was likely to have increased rather insignificantly while additional demand had been brought on the market by the above-mentioned stockpiling in the principal importing countries. In other parts of the world, the consumption showed, in general, a rising trend, though, with the exception of the U.S.S.R., the actual increase remained relatively unimportant.

The development of the U.S. market of sawn softwood is illustrated by the figures on stocks and unfilled orders at the end of each quarter and by the new orders received during the quarters (Table 3). The Table shows that, although the level of stocks at the end of March 1956 was slightly higher than a year earlier, the number of orders both received and unfilled, had not changed perceptibly.

TABLE 3. - DEVELOPMENT OF SOFT SAWNWOOD STOCKS, UNFILLED AND NEW ORDERS OF SAWN SOFTWOOD IN THE U.S.A.
(in million board feet)

	Date
Stocks at mills.	31.12.54	31.3.55	30.6.55	30.9,55	31.12.55	31.3.56
Total sawn softwood	5 275	5 259	5 004	5 062	5 429	5 380
Douglas fir	879	1 016	837	873	1 032	1 020
Southern pine	1 746	1 781	1 743	1 658	1 731	1 806
Western. Pine	1 764	1 601	1 586	1 693	1 801	1 673
Unfilled orders at mills
Douglas fir	801	791	826	676	710	798
Southern pine	239	273	274	293	217	270
Western pine	439	493	514	454	418	1 498
	Year
New orders received by the mills during the quarter	1954	1955				1956
	I	I	II	III	IV	I
Douglas fir.	2 387	2 396	2 701	2 126	1 993	2 379
Southern pine	1 952	2 121	2 317	2 283	1 968	2 127
Western pine	2 129	1 891	2 368	2 423	1 933	1 863

Source: Survey of Current Business - U.S. Department of Commerce.

Table 4 shows the development of stocks in relation to production and gross exports or imports in the principal consuming or exporting countries. It is interesting to note that in the main European importing/consuming countries, stocks at 1 January have been rather constantly about one half of the average gross annual imports by these countries in the period 1951-1954, the beginning of 1956 being an exception as a result of stock-accumulation in the previous year. The importance of the stocks in these countries as compared with their domestic production of sawn softwood also emerges from the Table.

As to the principal European exporting countries, stocks at the beginning of each year seem also to have been around one half of the average annual gross exports in 1951-1954, generally representing, however, a somewhat lower share of the total annual trade than in the importing countries. In North America, the relatively low level of stocks as compared with the production finds its explanation in the fact that the bulk of the trade being transacted within the U.S.A., the trade has less difficulties in getting its regular supplies than, for example, in Europe, where a large part of the movement of the trade depends on traditional shipping seasons and the trade therefore has periodically to carry heavier stocks than in North America. On the other hand, the relatively great importance of the stocks in North America as compared with the gross annual exports by that region again confirms the fact that international trade here is more or less of a marginal character and insignificant both with regard to the total production and the total consumption of sawn softwood.

Prices

During the past years the world production of sawn softwood seems to have followed with ready flexibility the changes in demand: supplies have, in general, presented no difficulty to the trade. The main problem of the sawn softwood market, notably in Europe and certain importing regions overseas, has been the rise in the cost of sawnwood. Much has been written about the unfavorable development of sawnwood prices, as compared with its competing materials and about the increased difficulties the wholesale trade has been meeting in trying to obtain from the consumers a price corresponding to the cost of current replacement stocks.

Since 1950, prices of sawn softwood practically everywhere in the world have been marked by a continuous rise, the degree of which has varied between different countries. In certain regions, such as North America, the price of sawn softwood has, during the period 1951-1956, remained markedly stable and does not seem to have risen much faster than the prices of most competing materials. In other regions, especially in Europe, the development of sawn softwood prices¹ was completely out of line with the general price developments. The rise was particularly significant in countries or regions which depend on international trade for the bulk of their consumption requirements, and consequently the development of the average unit value of world sawn-wood exports clearly reflects the rising trend of international prices. Table 5 illustrates the development of the sawn softwood price indexes in a number of countries, compared with the price index of primary commodities (United Nations index). It shows that, while the price of sawn softwood in the U.S.A. has compared rather favorably with the price development of other primary commodities, prices of sawn softwood in the principal exporting countries indicate a steadily ascending trend with a growing disproportion between them and the overall price development.

¹ Depending in many instances on high roundwood prices.

TABLE 4. - STOCKS OF SAWN SOFTWOOD

Region		By 1 January
		1952	1953	1954	1955	1956
Europe:		percentage of average, 1951-1954
Importing countries1	Production	76.1	69.3	74.7	79.2	90.0
	Gross imports	56.4	51.8	55.9	59.3	67.3
Exporting countries2	Production	28.0	34.1	28.7	33.1	30.1
	Gross exports	1 48.2	58.7	49.4	52.3	51.2
North America3	Production	1 16.8	16.7	18.4	16.9	17.1
	Gross exports	146.0	145.4	160.0	146.7	148.7

¹ Belgium-Luxembourg, Denmark, Western Germany, Netherlands, Switzerland and the United Kingdom.
² Austria, Norway, Sweden and Yugoslavia.
³ Canada and the United States.

The world prices of primary commodities which in the boom year of 1951 reached record levels have, after the fall in 1952 and 1953, remained by and large unchanged, while the prices of sawn softwood in international trade had, by the end of 1955, either regained or. as in the case of Austria, even exceeded the earlier record levels.

TABLE 5. - DEVELOPMENT OF SAWN SOFTWOOD PRICE INDEXES COMPARED WITH THAT OF PRIMARY COMMODITIES

Price index	1950	1951	1952	1953	1954	1955
Sawn softwood (1950 = 100)
Austria1	100	199	243	235	272	328
Sweden2	100	155	140	140	147	154
Canada3	100	120	126	127	122	128
U.S.A.4	100	107	110	102	103	113
Primary commodities
(1950 = 100)	100	124	110	103	108	104

¹ Wholesale price for mill run, in Styria.
² Average export price for 2 ½ × 7", u/s redwood, f.o.b.
³ Wholesale price for Merchantable Spruce 1" × 6/7".
⁴ Wholesale price for Douglas Fir No. 1 Common, 2" × 4

The example of the U.S.A. illustrates very clearly the effect of sufficient domestic supplies which allow timber price developments to adapt themselves to general price trends in the country. In these circumstances, the more or less marginal imports, even if import prices happen to be slightly above the domestic level, do not seriously disturb the domestic price trends. Canada normally disposes of the bulk of its export supplies to the U.S.A. and therefore has more or less to follow the U.S. level of prices in its domestic as well as in its export price quotations. In Europe, where most of the principal importing countries depend on foreign supplies for the bulk of their total requirements, the development of sawnwood prices has largely been influenced by the price determining factors in the exporting countries. It seems that the inflationary trend in most countries of western Europe has been more rampant in the principal sawnwood producing and e exporting countries than in those chiefly importing and - this has forcibly led to an ever-increasing disproportion - between timber prices and the prices of other basic raw materials in the importing countries. Table 6 - shows the development of the average unit value index - of sawn softwood exports, compared with that of world total exports (United Nations index) as well as the 1 different country unit values of sawn softwood exports.

TABLE 6. - DEVELOPMENT OF AVERAGE UNIT VALUE OF SOFT SAWNWOOD EXPORTS COMPARED WITH OTHER RELATED UNIT VALUES

	1950	1951	1952	1953	1954	1955
Unit value index, of world exports of sawn softwood: (1950 = 100)	100.00	148.00	137.00	135.00	130.00	130.00
Unit value index of world exports: (1950 = 100)	100.00	122.00	118.00	113.00	112.00	112.00
Average unit values of world exports of sawnsoftwood: (U.S. $ per cu.m.)	28.50	42.10	39.50	38.30	37.20	39.01
of which:
Austria	19.07	30.61	37.25	39,03	33.90	38.46
Finland	20.40	41.00	39.91	40.38	42.08	43.28
Sweden	28.92	44.31	44.15	41.33	42.22	44.18
Canada	30.90	35.70	37.66	35.11	34.36	35.19

Given this development, it is in no way astonishing that the competitive position of sawnwood as a basic raw material, notably in building, has steadily declined in most of the importing countries. Some of these have tried to neutralize this development either by spreading their purchases over an increasing number of exporting countries with sawnwood of different qualities and prices, thus obtaining more favorable averages of imported timber, or by introducing internal price controlling measures. While these efforts have in some instances slowed down the excessive increase of consumer prices of sawn softwood, it has led to disturbances in the trade, particularly with regard to the replacement of stocks. In some of the exporting countries also, the domestic price of sawn softwood has tended to rise faster than that of the principal competing materials, either because the latter were controlled by the authorities - entirely or partially - or because the importance of sawn softwood to certain of these countries' export earnings made it undesirable to check the rise of prices and perhaps encourage domestic demand to the detriment of export trade.

Table 7 illustrates the development of the relationship between sawn softwood prices and those of basic building materials and the general wholesale prices. The figures show that sawn softwood prices have in the principal exporting countries tended to increase more steeply, compared with tile building materials and general wholesale prices, than in the main importing countries In the case of North America, the steadiness and even a certain decline of sawnwood prices in relation to other prices is one of the most interesting features of this price comparison, as it demonstrates opposite trends in the two principal sawnwood consuming regions the world.

TABLE 7. - PRICE RELATIONSHIP BETWEEN SAWN SOFT WOOD, BUILDING MATERIAL AND WHOLESALE PRICES

Country	1950	1951	1952	1953	1954	1955
Austria 1 a.	100	150	163	162	188	226
2.	100	149	163	167	185	216
Finland 1.	100	109	117	113	118	130
2.	100	103	115	112	122	125
Italy 1.	100	140	150	145	144	170
2.	100	132	164	159	157	184
Netherlands 1 a.	100	141	122	116	108	107
2.	100	127	116	119	120	123
Sweden 1	100	117	98	404	111	113
2:	100	171	100	107	112	112
United Kingdom 1.	100	135	127	114	113	118
2.	100	132	130	113	113	118
Canada 1.	100	107	102	99	98	99
2.	100	107	111	112	112	114
United States 1.	100	98	102	94	95	99
2.	100	97	103	97	97	107

¹. Sawn softwood prices In relation to building materials. (Index of building materials = 100)
². Sawn softwood prices in relation to wholesale prices. (Wholesale Ices Index = 100).
^a Bricks only.

The past years have shown constantly rising import prices and simultaneous efforts to keep consumer prices at competitive levels; these developments have been a matter of serious concern to the majority of importing countries which, though struggling with financial difficulties, nevertheless were intent on maintaining supplies to the consumer market at near normal. During these years almost every level of the timber trade has seen the profit margins in importing countries grow narrower or even dwindle, and hopes that the unfavorable effects of the 1951 boom could be wiped out in the course of the following years, have so far proved rain. The developments of sawn softwood prices at different levels of trade in Belgium, as illustrated by the Graph, could also apply to a number of other - notably European - countries. It shows the growing gap between the basic export quotations and the prices obtained on the domestic market.

It is true that the basic quotations (for 2 ½ inch × 7 inch u/s redwood battens) alone do not give an accurate picture of the development of the average prices paid for imports from the countries referred to, as the latter may change considerably according to the composition, specification and qualities of the wood purchased. With some of the qualities and dimensions becoming increasingly unprofitable, there has been a tendency on the part of the importers to try to obtain more and more of such grades and dimensions as are easiest to sell. This, however, did not always accord with the exporters' wishes, which are dictated by current sawing practices, the steadily increasing cost of production and by the desire to obtain a reasonably profitable average price for the whole year's production. While the current export quotations thus approach more nearly the actual costs of production at the sawmills, freight fluctuations have become more and more important to the price formation and importers' level. Changes in current freight rates may in fact be decisive as to the possibility of selling the imported goods with a profit or a loss. A feature of the present situation, which may be characterized as a kind of stabilization of prices at a maximum level, is thus that the margin for normal trade speculation has from year to year grown narrower and consequently tends to make the whole structure of trade in sawn softwood much more rigid than before.

Development of Sawn Softwood Prices in Belgium (Index: 1/1/1950=100)

TABLE 9. - SWEDISH COMPARATIVE PRICES OF "FIFTH QUALITY" WITH UNSORTED SOFT SAWNWOOD

Year	Month 1	Percent
1950	1 January	89.0
	30 June	89.5
	31 December	94.5
1951	30 June	95.0
	31 December	95.0
1952	30 June	84.0
	31 December	90.0
1953	30 June	90.5
	31 December	87.5
1954	30 June	86.0
	31 December	86.0
1955	30 June	86.0
	31 December	83.0
1956	31 May	82.0

Both exporters and importers look for an issue out of the present deadlock, the former by trying to introduce less costly means of production, the latter by looking increasingly around for other sources of supply abroad or by encouraging the national, mostly cheaper, production of sawn softwood.

One of the effects of the past developments on the current prices in international trade has been the growing gap between for higher class sawnwood and prices paid for inferior categories. The changes in the relationship between prices of unsorted sawnwood and those of fifth-quality sawnwood illustrates the gradual decline in the trade value of the latter. Table 8 gives the Swedish price of "fifth-quality" sawnwood as a percentage of that of "unsorted," i. e., superior assortments, over the period 1 January 1950 to the end of May 1956.

A similar development has taken place in the relationship between dimensions currently in good demand and those for which resales at even importers' cost value have in the past years met with difficulty. This process, however, seems to be rather slow as it inevitably tends somewhat to increase the price of more current dimensions as a compensation to the sawmills for the reduced value of less popular specifications.

Conclusion

It is obvious that the present situation on the sawn softwood market in the world, in particular in Europe and those regions which depend greatly on imported supplies, is becoming increasingly acute as far as prices are concerned. Supplies seem to remain quite sufficient and consequently, no appeal can he made to a shortage in sawn softwood, as a justification for any further rise in quotations for this commodity. The factors which determine the current formation of export prices may be said to depend primarily on the general economic developments in the exporting countries; and it may be difficult to change the present course of sawnwood prices unless a general economic stabilization is achieved in those countries whose exports are decisive for the price trend of the whole world market of sawn softwood.

E. K.