Summary
• Ireland softwood exports to the UK have fallen slightly this year.
• Irish construction has fallen again.
• Mills say Irish logs price make them internationally uncompetitive.
• Some mills are considering production curtailments in December.

Irish sawmills’ gains in UK market share since 2008 are a success story among Ireland’s economic woes but competition has been stiff since UK demand for softwood slowed towards the end of the summer.

According to the UK Timber Trade Federation’s latest statistics, UK softwood imports in August were 21% down on August 2010 and Ireland’s share fell from 8% to 6%. Over the eight months to August, Ireland’s market share fell one percentage point to 6%.

“The UK has been disappointing this year,” said one sawmiller. “There’s been weakening demand throughout the year.”

Although Ireland’s market share has slipped this year, over the past three years it had risen by 50% mostly, the Irish mills say, by displacing other imports.

“It appears that the British and Irish mills have a bit of a battle going on but we’ve made our increases by displacing imported timber where people have opted for cheaper home-grown timber, especially in the shorter lengths,” said another sawmiller.

“In the construction timber market we’ve made big leaps forward. It’s purely down to price. They [customers] can’t ignore the differential between imported C24 and home-grown C16.”

The slowing of UK demand coincided with another fall in Ireland’s already depressed domestic market. “At the end of July the Irish construction market – what’s left of it – fell off a cliff,” said one contact. “It hasn’t recovered and there’s no sign that it will come back in the short term. We’ve been lucky that it’s kept us going up till now.”

The Irish mills remain committed to the UK but they concede that log prices, the exchange rate and competition make it a difficult market.

“Margins are squeezed extremely tight and log prices are certainly not related to the current market conditions,” said one sawmiller. “However, the bottom line is that the Irish mills are going to be in the UK for the long term. Every bit of work we’re doing in growing our customer base there is with the long-term view.”

Log costs are a common pressure throughout Europe but Irish mills say the prices they pay are comparatively higher. Up until April prices were falling from their 2010 peak, but since then there’s been little movement.

“We’d be a lot happier if our log prices were internationally competitive. It’s very hard to compete with British mills,” said one sawmiller.

While all would like log prices to be lower, Coillte, which supplies the bulk of Irish logs, points out that the material is sold on the open market. “We sell at an auction and our customers pay us a log market price,” said a spokesperson. “It’s open and transparent.”

This year Coillte offered 1.8 million m³ to the sawmills – a volume similar to last year – and 99% was sold. With roughly the same amount expected to be available next year, one sawmiller said a change in log costs was unlikely so timber prices would have to rise.

“We’ve always been price takers but I think for the first time, log prices are going to push that back towards the market. Prices will have to rise. Some of the prices we hear mean people must be selling at a loss and that’s not sustainable,” he said.

Another contact believed that the mills were taking a much more “measured approach” to the UK because of the “pure economics” of exporting. He accepted that the mills had no option but to export to the UK but they did have a choice of “paying through the nose” for raw material from private forests.

Some mills will take a decision soon on whether to curtail production in December – through reducing shifts or taking an extended Christmas break – but the same contact believed some had already lowered output. “Export volumes are down and I don’t believe they’re holding stock in the yards; I think they’ve pulled back production,” he said.

Prospects for 2012 look much the same as for this year and, with UK demand expected to remain flat, any gains that Irish mills make will be at the expense of imported material.

“Next year is hard to call. A month ago we’d have said that we were optimistic about next year. But at the start of the year there’s going to be such a battle on the ground between importers and home-grown for market share that prices could be tough for the first half.”

Another expected the decline in UK demand to halt, but it wouldn’t bounce back to 2010 levels. “We believe the market will be pretty static,” he said. “We’ll have some increase but nothing major. Whatever we take will be off imported material.”

And while there are signs that some industry sectors in Ireland are growing, building isn’t one of them and many in the timber industry believe it will be 2013 before they see any improvement. “Some people expect that in 2012 Ireland could have one of the best growth rates in Europe, but that’s not in construction,” said a contact.

Other possible headaches for 2012 are two developments at Coillte – the potential sale of its forests and its plans to take over all harvesting.

“The government is under pressure to sell some state assets and Coillte is on the list,” TTJ was told. “That could have serious ramifications for our industry because log supply is tight and we rely on Coillte’s fortnightly auctions.

“If the forest were sold to a private investor, a bank or Chinese institution that could have a big impact on our industry as they might not sell [logs] if the price reaches a certain level.”

And Coillte’s announcement that it wants to do all harvesting in its forests is “causing uproar”.

“We prefer to harvest ourselves so we can cut the lengths we want to match our order books and maximise the resource. If that were to change it could be catastrophic,” he said.

He doubted that Coillte had the flexibility to meet the large sawmills’ needs and, while harvesting contractors had been offered work with Coillte, it would have a detrimental effect on the contracting sector as well.

A Coillte spokesperson said the organisation’s review of harvesting, which has a two-and-a-half year time frame, was in the “very early stages”.

“We’ve started the process and are speaking to the industry at many different levels and we’ve had some good feedback,” he said.

The details of the proposal are still being worked out but the spokesperson said the aims were to improve customer service and supply security, and reduce log price volatility.