UK pallet manufacturers appear to be enjoying their best market conditions for some time and have been able to push through price increases although, to a large extent, these have served only to cover their own higher costs. The fencing sector is also shouldering the burden of higher overheads at a time when order levels are not as buoyant as some had anticipated for this time of year.
Demand for pallets in the UK appears to have fluctuated from month to month but, overall, has been acceptable so far in 2004.
A major domestic pallet manufacturer said all of his company’s operations were “extremely busy” but insisted that production efficiency remained the key to success in what was still a fragile business. His company had achieved some price increases but was effectively “treading water” with regard to margins because of upward price pressure on home-grown and imported timber; the rising cost of fuel; and an estimated 40% increase in nail prices within the space of four months. He concluded: “The cost of pallets is only going to go up. Customers have enjoyed good prices for a long while but it won’t always be that way.” To date, many customers had accepted the reasons behind the need to increase pallet prices, he added.
Another manufacturer confirmed that since February his company had pushed through price increases of between 5-15%, depending on the size and specification of the pallet. While also acknowledging growing cost pressures, he pointed to greater difficulty in sourcing all raw material requirements as sawmillers in the UK and beyond were being more selective about the sizes and sections they wanted to cut.
Greater selectivity
Noting that this trend towards greater selectivity was noticeable in the Baltics and that some shippers were asking for higher premiums on pallet timber, one specialist suggested that pallet manufacturers in the UK would have to “box clever” and remain open to new supply options. He also believed pallet timber prices were likely to go higher.
TIMCON has warned that mounting cost pressures on the UK’s pallet and timber packaging industry “will inevitably lead to further product price increases”. Nail prices were increasing by up to 50%, the organisation maintained, due to unprecedented increases in world steel and wire rod prices resulting from rapacious demand in China. TIMCON also highlighted rising timber pallet prices resulting from the “unavailability of Baltic softwood and higher home-grown softwood prices to the sector”.
The recent bankruptcies of two major shipping lines had also driven up the cost of importing pallet timber from the Baltics, according to TIMCON. This was mentioned by a number of contacts, with one saying: “It has led to delays in supply and some desperation in the UK among people waiting for material.”
Recent developments in international plant health regulations have meant that any operators with heat treatment facilities have been reaping the rewards. Despite orders flowing in for new chambers, demand for heat treated material is still far outweighing supply. The driving force behind this trend has been the ISPM 15 International Standard for Phytosanitary Measures for wood packaging materials, which involves the heat treatment or fumigation of wooden packaging for shipment to many parts of the world. The EU‘s implementation date for this standard has been put back from July 1 this year to January 1, 2005 in response to requests from non-EU states and delays in some member countries in completing necessary national legislation within the timescale. Full implementation in the US is now envisaged within 6-12 months while “emergency measures” remain in place in China.
A pallet manufacturer described the move towards heat treatment as “absolutely positive” for the sector but said that the higher-quality product that would result, should involve a market cost. “A lot of customers, including top companies, still want to buy on price,” he said. “They must check that the pallets they receive meet the required standards.”
Mixed messages
Mixed messages are emerging from the fencing sector. While several contacts suggested demand from the domestic sector was very busy, the early months of 2004 have failed to meet the expectations of many companies in the sector. These conditions have been attributed to a late Easter, to poor weather during the early spring and to fears of further interest rate increases deterring homeowners from investing in their properties.
It should be underlined that sales have not been too bad for many in the business. One major supplier into the domestic sector reported a continuing trend towards higher-quality European screens, year-on-year growth in shed sales, and healthy sales of open structures such as pavilions and gazebos. A spokesperson observed: “We feel that there is an enormous pent-up demand out there and that people will come to the market if the current good weather continues.”
Other fencing manufacturers were more downbeat, with one suggesting that “Easter didn’t happen at all for us” and that “we had the staff, we had the stock but we didn’t have the customers”. However, most fencing firms appear to have succeeded in pushing through price increases, largely as a reflection of increased costs associated with timber supplies and the adoption of non-CCA preservatives. And, as in the pallet sector, the prices of metal components used by the fencing and garden products sector have increased rapidly in recent months. A major manufacturer said he was being asked to pay a 15% surcharge on nails, staples and wire.
Highways sector activity
While certain domestic fencing suppliers appear to be busy, activity levels in the highways sector have fallen well short of expectations. A couple of companies contacted this week lamented the fact that no further news had been heard about new road schemes announced last year by the government. The lack of business from this sector had already led to job losses, TTJ was informed.
On the face of it, tight availability of fencing timber from the Baltics should have meant more opportunities for suppliers of home-grown material but the beneficial impact has not been felt across the whole of the country. Some mills were said to be operating on lead times of up to eight weeks whereas others were at a more normal three to four weeks.
The decline in sawmiller numbers has intensified anxiety over timber supply. Evidence suggests that the number of mills has continued to fall in the past few years but at a slower rate than in the late 1990s and the early part of the new millennium. However, the drop has been steeper in England than in other parts of Britain, introducing regional factors into the current supply situation.
One sawmiller expressed concern at the failure of the fencing market to “kick on after Easter”, especially as the fencing season was generally restricted to only a few months yet had a major bearing on the success of the entire financial year. He also bemoaned a temporary surcharge of almost 10% imposed on metal fittings such as hinges and gate latches in response to runaway global steel demand.
The sawmilling sector also voiced its worry this week about the latest oil price developments, from the perspective of not only higher fuel costs but also the possibility of picketing of fuel depots by hauliers. Sawmillers have not been cheered either by news that chipboard manufacturers have been able to achieve price increases over recent months. “We are certainly not seeing good prices for our wood chips,” one complained.
