The reasonably good Easter weather provided something of a boost for a UK fencing sector in which fortunes appear to have differed greatly during the first four months of the year. For their part, pallet manufacturers are reporting “static” to “reasonable” levels of demand.
That said, the key issue for many of the UK’s fencing and pallet operators continues to be the lingering problems with ice in the Baltic region. Activity out of the Latvian port of Riga has remained far from normal, with the £2/m3 ice surcharge still in place as of late April and with difficulties continuing to be caused by changing winds and shifting ice. According to one fencing industry player located at a small east coast UK port, “we have not seen a boat from Riga here for ages – perhaps only one or two since the start of the year”.
March proved to be a particularly difficult month for shipments out of the region, with the result that there is now a backlog of contracts either on the water or awaiting a vessel. An improvement in conditions during April has meant that vessels have been loading “left, right and centre”, said one regional expert.
Alternative supplies
The resultant tightness in supply of Baltic timber has forced many UK businesses to look elsewhere for their fencing and pallet timber. “One or two big players are very committed to Baltic timber and so, given that they have needed to find alternatives, it has been a case of getting out the cheque book for a short-term fix,” commented a leading pallet manufacturer.
Sources of home-grown material have reported picking up business from, as one sawmiller put it, “buyers we wouldn’t normally hear from at this time of year” although many claim to have passed up the opportunity to take their business, opting instead to offer continuity of service to regular buyers. Nevertheless, forward order books at many mills are understood to have lengthened markedly. “I suspect significant premiums are being paid for blocks of material to help manufacturers get over a short-term gap in supply – but the premium is there to cover the risk of compromising supply to regular customers,” TTJ was told.
The price of imported timber from the Baltics, Sweden and Ireland has reportedly jumped by several pounds per m3 over recent weeks, providing home-grown timber suppliers with scope for at least some upward price adjustment.
Despite a number of buyers gravitating towards home-grown timber, the UK sawmilling sector is not exactly jumping for joy. Many operators claim that most of the price increase will have to be passed on to the foresters, while the sawmilling sector itself continues to be battered by the effects of falling residue prices – described by one operator this week as “a never-ending nightmare” . The cessation of activities at the Vertex chipboard mill in north-east England has effectively removed another residue buyer from the equation.
Home-grown timber suppliers are worried about what will happen once the Baltics’ supply difficulties have been resolved, fearing that a sudden glut of imports into the UK could have a decidedly negative impact on the market.
At the same time, some UK sawmillers have been reporting difficulties of their own regarding log availability. One explained: “Round and stakes have not been coming in from the Baltics so UK foresters have concentrated on cutting these. This has taken them off other production and we are seeing some shortages in certain sizes – particularly the bigger logs.”
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“I can see it getting tougher out there for a lot of the smaller pallet manufacturers who are already struggling” |
Seasonal boom
At the other end of the fencing chain, the impact of the Easter break on finished product sales is difficult to quantify. If the weather is reasonably good, “fencing panels usually walk out of the DIY sheds”, one contact said. But many operators were claiming this week that this seasonal boom appeared to be a little more muted this year. Some attributed this to Easter being later and that sales earlier in the spring had been better than normal. Noting that some early spring demand was a response to wind damage late last year, a leading fencing supplier claimed: “Easter was pretty good but average whereas the period before it was very good based purely on the weather. We had a good March and a cracking April.” At the same time, he said there was no scope to increase finished product prices despite “definite pressure” on timber, transport and exchange rate costs.
Another fencing specialist reported “ballistic” demand across the board, but in particular from the domestic sector and for standard post and rail for road projects. “We have been able to put up our prices by 8-10% since the start of the year,’ a spokesperson confirmed, although he added that these additional returns effectively only went some way towards recovering previous lost ground on prices and ever-mounting insurance, transport and treatment costs. But he added optimistically: “All the indications are that we should have an exceedingly good summer, and there is no reason why prices shouldn’t at least be maintained.”
Despite supply problems relating to the situation in the Baltics, the UK pallet sector is dismissive of its chances of passing on higher timber prices to an extremely price-sensitive customer base. A leading manufacturer suggested that a prolonged period of higher timber prices “could mean more casualties in the pallet sector”. He added: “I can see it getting tougher out there for a lot of the smaller pallet manufacturers who are already struggling.”
Acquisition
But despite this backdrop of ever-tighter margins, Fife-based pallet producer Scott Timber Group has invested around £5m in acquiring south-east England manufacturer Combine Pallets to take its production capacity for new and recycled pallets to 9.3 million per year at eight locations in Britain. With all its sites reportedly busy, the indications from the company itself and from the industry grapevine point to further, imminent acquisitions.
Scott Timber has attributed its expansion to a policy of matching increasing volume with ever-higher levels of efficiency. In general, however, the UK pallet sector continues to suffer from the effects of overcapacity, rising timber prices and ‘straight-jacket margins’. One pallet manufacturer who was celebrating a 30% upturn in turnover during the first quarter of 2003 said this was due primarily to a rise in “higher-margin” work. “We have had some success with price increases but these only tend to cover higher costs of timber,” he added. “A lot of contracts are long term so it’s hard to justify to the customer that you want to move prices mid-stream.”
On the news front, a spokesperson for the European Pallet Association (EPAL) told TTJ that Cardiff-based Fisher Containers & Pallets Ltd has opted not to lodge an appeal against a
Decking sales
In other news, the Timber Decking Association (TDA) confirmed this week that UK sales topped £100m last year and that demand had been “crazy” during the first quarter of this year, partly as a result of the reasonable weather during the early spring. Meanwhile, the association has launched an approved decking retail scheme whereby at least two people from retailers are being put through a TDA training programme to improve their knowledge of all aspects of decking. “This is designed to help retailers offer good advice to consumers and even to the trade,” said a TDA spokesperson.
