The UK fencing sector has been thrown into what was described this week as ‘uproar’ by news that an EU ban might be slapped on CCA treatment. According to details available at present, the ban would be intended to cover all products with the exception of cooling tower timbers, sleepers and telegraph poles.
Consternation within the UK fencing trade over this issue has been such that a meeting was scheduled to take place in Derby at the start of this week under the auspices of the British Wood Preserving & Damp-proofing Association (see news). The aim was to attract not only BWPDA members but also representatives from other interested parties – such as the Highways Agency – so as to develop a common position on the issue.
The threat of this EU ban has taken the shine off what has been a reasonably brisk start to the year for some fencing companies, particularly those involved in road, environmental and acoustic projects. However, the more standard types of fencing were experiencing patchier demand, with one operator describing the market as ‘dead as a dodo’, while others were quite pleased with the level of business. The timing of the start of the main fencing season was particularly important, many analysts agreed, since any delay could lead to cash flow problems.
According to a leading home-grown timber sawmiller, a large volume of panel fencing is traditionally delivered in the early part of the year as regular customers look to place stock orders following Christmas. ‘I don’t think 2002 will be a spectacular year,’ he suggested, ‘but there are still signs of confidence in the market.’ Another ventured: ‘2001 was certainly a very good year but we are more uncertain for this year. We are budgeting for no growth in 2002 although it is a bit too early to say how the year will go.’
Lower price push
Demand may be reasonable for the time of year, but that has not stopped some customers pushing for lower prices on the back of fierce competition within the fencing supply sector. Prices for pre-constructed fencing have been under severe pressure since the autumn but appear to be experiencing renewed weakness. Prices relating to fencing panels are described as more stable.
Pointing to Ireland as one of the sources of this price pressure, one UK sawmiller suggested that the recent downturn in the Irish economy had placed a strain on domestic sawmillers which had invested heavily in new plant when the economy was healthier. Home demand had now declined so many Irish producers had adopted an ‘aggressive’ pricing policy in traditional export markets such as the UK in order to keep plant and cash flow ticking over. ‘It is very much a buyer’s market at the moment,’ he concluded.
As ever, the weather will have a major impact on UK fencing demand over the coming months. The gales of November 2000 generated plenty of immediate repair and maintenance work, but ultimately contributed to a quiet period in the early months of 2001. While some fencing material producers were hopeful of stormier weather to come, at least one other suggested the demand peaks created by storm damage were of no substantial long-term assistance, since this simply meant work being pushed forward and condensed into a short period. Of more benefit, he believed, would be a substantial upturn in new housing starts to meet what he perceived as a ‘pent-up demand’, particularly in the south of England.
Two other major issues were preoccupying sawmillers this week. Possibly on the plus side, one operator suggested a successful launch for the euro might ultimately benefit home-grown timber since, if the euro gained against sterling, the Baltics might effectively obtain better rates in the euro zone than in the UK. On the downside, however, was the persistent concern surrounding falling residue prices.
According to one sawmiller, residue prices have halved in four years. Given the changing balance of requirements from the panel manufacturing sector, he wondered whether there would be a market for wood chips in the longer run and whether UK sawmillers could survive if that income dried up. He said it would be ‘a national scandal’ if sawmills were driven to the wall after investing millions in new capacity ahead of the anticipated increase in home-grown timber volumes over the next 15 years.
The same theme was pursued by another sawmiller who bemoaned a 20%-plus drop in ex-mill co-product prices within the past 12 months. A no-win situation had developed in which ‘you think you are going to get some benefit from log prices coming down and then the co-product price comes down too’. Overall, the sawmilling sector was ‘pretty bloody’ at the moment with ‘dreadful’ sawn timber prices, he said.
While some fencing operators might be hoping for high winds to create repair and maintenance work, one major supplier of garden products was hoping for a return to good weather before the Easter break at the end of March/early April. If largely dry weather persisted, he said, the ground would be in good condition for people to take advantage of the holiday to carry out work in their gardens.
On the news front, Forest Garden reported that its Lockerbie sawmill was approaching its original stated capacity and that the product manufacturing phase would commence this week. Products likely to be produced on site include fencing and trellis, as well as garden buildings for which continued growth in demand is reported.
Another operator suggested the plethora of garden improvement TV programmes had prompted a general increase in quality requirements away from the waney edged panel. As a result, the fencing trade now had ‘the opportunity for making more of a margin’.
Cheaper imports
In terms of fencing timber, imported material – notably from the Baltics – has been significantly cheaper than home-grown. Supply from the Baltics, however, was hit by a bout of harsh weather around Christmas which affected not only forest roads but also the motorways. Problems were reported in cutting and transporting logs, although an agent for the region suggested timber stocks at the ports were sufficient to maintain some shipments.
One operator pointed to a growing trend away from overseas timber towards home-grown, not least because ‘some customers are fed up with late deliveries from some overseas sources’, he said. In essence, he added, most customers seemed to expect ‘Baltic prices with UK delivery and quality’.
The tone of cautious satisfaction adopted by fencing operators contrasted starkly with the gloom emanating from the UK pallet sector. Demand has been no better than static while the price erosion established over recent years has continued. There have been reports of buyers going direct to the Baltics for their supplies and UK manufacturers ‘cutting their own throats just to maintain turnover’, with a few pence per pallet often the difference between retaining and losing a customer. As in the past with the price-conscious UK market, many pallet-consuming sectors have responded to a downturn by cutting their pallet specifications.
The Latvians are understood to be eager to push through a price increase ‘shortly’ in the light of the log supply problems. There was comment this week on a desire among Latvian producers to move more into added value products, thereby indicating a possible decline in availability of standard pallet board and therefore a potential increase in opportunities at the bottom end of the market for UK sawmillers. ‘When there isn’t a cheap alternative, everyone will benefit,’ said one experienced industry player.
The UK pallet sector enters the year with its now-familiar fundamental problems of static to diminishing demand coupled with overcapacity. Difficulties have been exacerbated within the past few months by the emergence of so-called reverse on-line auctions which, according to one contact, ‘appear to be designed to screw margins down even further’. Another leading player added: ‘Pallet auctions are continuing to affect the industry and to drive margins down. They are raising questions about specifications and about whether customer needs are being fully met in every instance.’ The situation had to resolve itself, he said, ‘because there is a point at which margins can’t be pushed down any further.’
Pallet prices
There appears to be no immediate prospect of an improvement in pallet prices in the UK, especially since the first quarter is traditionally a quieter time following the Christmas upturn in pallet movements. Poor weather also often undermines the ability of some industries – the construction sector, in particular – to make use of materials traditionally supplied on pallets.
It was confirmed this week that 30 registrations have been received for the voluntary marking scheme for wood packing materials and these are expected to double within months. The interests of companies signing up to the scheme extend from pallet and case manufacturers to export packers.
Agreed between the Forestry Commission, TIMCON and Northern Ireland’s Department of Agriculture and Rural Development, the scheme identifies UK packaging that has been manufactured to plant health standards and thus can be bought or reused by exporters in other countries, without further treatment, to send goods to Britain. According to one of the drivers of the scheme, early experience has demonstrated that its development will be customer-led. He added: ‘We have completed two orders already where we have been asked by the customer for marked pallets.’
