As global supply chains face unprecedented levels of uncertainty from the fallout of the coronavirus pandemic, large standing timber stocks across Europe remain under significant threat of attack from bark beetle infestations. Closer to home, the UK government’s pledge for net-zero carbon emissions has increased the focus on the forestry sector and is likely to drive the shift towards more sustainable timber-based construction methods.

CORONAVIRUS

As a worldwide public health threat, the Covid-19 virus outbreak has become a fast-evolving global pandemic with both short- and long-term economic implications. While governments around the world enact severe control measures to limit the spread of the disease, global trade and equity markets are scrambling to make sense of potential economic consequences and respond accordingly.

At the time of writing, domestic timber markets were starting to experience the realities of working in a lockdown environment, and by early April many processors had adopted reduced shift patterns or site closures.

The most significant impact has been in the cessation of building work, which removed saw-log demand in a matter of days. Some markets have been resilient, namely roundwood for biomass that feeds some hospital and care home heating systems and palletwood on the back of an unprecedented logistical effort to keep the country fed and medical supplies moving. Naturally, global trade, which supplies 80% of the UK timber requirement, is stalling and supply chains are being tested as processors and factories close, ports idle and shipping movements slow.

With the length and depth of any economic slowdown still largely unknown, the impact of the virus is best classed by an estimated recovery period. A prolonged pandemic is expected to have a significant bearing on general economic activity and substantial follow-on effects to consumer wealth, income and spending. Indeed, if the opposite occurs and disease control measures allow for a faster return to normal operation, follow-on effects may be reduced, and some commentators are predicting a strong ‘bounce’ late in 2020 and through next year.

For the UK, timber prices will ultimately be driven by the availability of imported stock and demand from the housebuilding sector. A large proportion of timber products used in the UK are imported, and domestic stocks and processors are not capable of countering any large shortfall. Supply chains, while paused, are as yet to be majorly affected, however with isolation and social distancing measures now impacting on non-essential business, including building and construction, major disruption in demand is conceivable over the short to medium term.

BARK BEETLE

Bark beetle infestation across central Europe’s spruce forests continues to pose a significant threat to timber markets. Recent mass outbreaks and their widening geographic spread have many countries on high alert to control its ecological and economic impact.

Bark beetles are a natural part of a conifer forest’s life cycle, but the scale and intensity in population growth over the past two decades is having an alarming impact. Rising temperatures are preventing widespread winter die-back of beetle larvae, while also enhancing the beetles’ potency. The beetles are expanding into new territory, hatching earlier and reproducing more frequently.

As a result, Switzerland is preparing to lose all spruce trees that do not lie high in the Alps. The Czech Republic’s forest body estimates its 2018 outbreak affected 18 million cubic metres of spruce, some 10 times more than amounts seen in previous years. At a cost of nearly £671 million in discounted product and extra logging costs, the ramifications of a continued rise in beetle population could be significant for global timber stocks.

Australian bushfires

The recent bushfires over the Australian summer highlighted the unique exposure of land-based investments. Australia is no stranger to hot, dry weather, but the cumulative effect of severe and prolonged rainfall deficits combined with high temperatures and strong winds created disastrous fire conditions. Estimates are that up to 11 million hectares of bush, forest, parks and agricultural land were directly affected by the fires, which in context equates to around 85% of England’s land area. The worst in terms of fire intensity was the 5.8 million hectares impacted across south-eastern Australia.

Of this, it is estimated around 1.6 million hectares of forestry and plantation timber has been burnt according to rural intelligence company Digital Agriculture Services. This equates to 1.2% of Australia’s total forest and plantation area, or half the 3.2 million hectares of woodland in the UK.

Economic costs are still being tallied but, with the scale of devastation likely to prohibit a widespread reclamation harvest, it is reasonable to assume a significant write-down in biological assets will occur as a result.

Sustainable construction

Reduced waste, lower costs and negative emissions

Timber as a sustainable construction material is unrivalled in its category. Wooden buildings can contribute to negative emissions as the timber used in the building doubles as a carbon store and makes way for new trees to continue carbon sequestration.

According to research by the Policy Exchange, timber frames currently account for 22% of new builds in England, 17% in Northern Ireland and 30% in Wales. This is a number that could be greatly increased considering Scotland reports timber frames make up 80% of new builds.

Recent studies of modular timber frames show a 35% saving of embodied carbon compared to traditional residential building methods, while also reducing waste and lowering costs. A shift towards more sustainable construction products is gaining momentum, particularly as at present 40% of UK carbon dioxide emissions derive from building and construction, with the largest contributor being concrete.

Introducing products such as Cross Laminated Timber (CLT) or Glulam improves cost-effectiveness and construction strength of new builds, as well as providing ongoing sustainability benefits long after building completion. Producing a laminated timber beam uses one-sixth the energy required for a steel beam of comparable strength. Softwood timber window frames provide almost 400 times the insulation when compared to a plain steel equivalent and over 1,000 times as much as an aluminium equivalent.

The value of timber-based construction has been recognised by the French government, which is pushing for reform that mandates all new public buildings be made from at least 50% wood or bio-based materials by 2022. The commitment comes as the country begins construction on its 2024 Olympic precinct, for which it says any building under eight stories will be built entirely of timber.

_{Read the articles within The Forestry Market below.}