Uncertainty continues to dog operators in the Irish timber market, following a comparatively inauspicious start to the year. A degree of common sense appears to have returned to the housing market in Ireland and house prices have fallen steadily throughout the first quarter, though there are fears that this will eventually have an effect on timber markets.
One contact confessed to being a bit worried about the immediate prospects for the industry, though he said people in the timber import, distribution and sawmilling sectors were still very busy. ‘They would just like to be busy at a much higher price and making more of a margin,’ he commented, ‘if they can make a margin at all.’
A slow start to the year is not entirely unusual in Ireland; business was also significantly down in the first quarter of 2000 but recovered strongly throughout the rest of the year.
The biggest single problem facing the Irish timber industry is a fall-off in demand from the construction sector. The insatiable appetite of the Irish construction sector for land, at any price, has been tempered by the reluctance of property buyers to pay the outrageous prices builders needed to charge to ensure projects pay off, it is reported. As a result, building activity has continued to decline beyond the first quarter and into the second.
Market decline
Having been ‘very spoilt’ over the past few years, the timber trade is having to come to terms with a market that peaked in 2000 and which now appears to be in decline, said one contact, who estimates the current level of business to be similar to that of 1999. ‘There has been a drop-off this year and we are struggling with reduced demand,’ he said. ‘It is impacting on the entire construction sector and those servicing it.’
Figures released by Homebond, which administers a house-building guarantee scheme and also compiles records on housing and apartment starts, show that construction fell by 17% nationally in the first four months of 2001 and by an even higher percentage in some built-up areas.
But while the construction sector is not quite as buoyant as it has been, it could still ‘easily afford’ to pay higher prices for wood, some contacts believe. However, current oversupply of timber in Ireland means that mills have little or no leverage with which to make price increases stick.
Log prices
While sawn timber prices have come under increasing pressure, log prices have yet to adjust to developments, which is causing some consternation among Irish sawmillers. Coillte‘s log pricing system, which tracks changes in the market but is inevitably some weeks behind, is criticised by some sawmillers for not responding more quickly to the trend. It should be said, however, that this delay also occurs when the market is becoming more favourable to sawmillers, so the perceived disadvantage is probably balanced over the longer term.
A report into sawmilling in Ireland, which has just been released by the Irish Timber Council (ITC), shows that domestic sawmills have invested a total of about I£68.5m in production and capacity improvements over the past three years, including projections for the rest of 2001, much of which is only just feeding through to the market.
The report, which is based upon responses to questionnaires sent out to ITC-member sawmills, is the first to attempt to quantify investment and production activity in the Irish sawmilling sector and has been broadly welcomed. It shows that mill investments in Northern Ireland and the Republic increased from I£22.9m in 1999 to just over I£29m in 2000, before falling back to an anticipated I£17m for this year.
Turnover rose correspond-ingly, from about I£137m in 1999, to I£154m in 2000, as did the volume of wood processed; in 1999 the mills used almost 1.6 million m³, compared with 1.8 million m³ in 2000.
ITC mills process in excess of 91% of all sawlog material in Ireland, with the top five producing over 200,000m³ of timber per year. The findings of the report are therefore believed to fill an important gap in the knowledge base of the industry and give people a more reliable base from which to make planning decisions. The development will also assist the government-appointed steering body which has been charged with formulating a strategy for the timber industry as a whole.
Perhaps the three most significant sawmilling investments coming on stream this year have been made by Balcas Timber Ltd, of Enniskillen, Murray Timber Products Ltd and Glennon Brothers Cork Ltd, the latter of which is commissioning a new line now.
However, some people believe these investments may not bring the kind of rewards anticipated when they were conceived. ‘If people had geared up to expect another year 2000, they are obviously going to be disappointed,’ commented one contact. The likely effect of all the extra capacity is oversupply in Ireland, which can only impact adversely upon timber prices, the contact believes.
The possibility of imminent oversupply in Ireland is even more likely, given that Coillte intends to increase its log offering by an estimated 10% this year, compared with 2000. The state-owned forestry service plans to make about 1.8 million m3 of timber available to domestic sawmillers by the end of 2001 and has no immediate plans to curtail harvesting targets. ‘A number of Irish mills have made significant investments, which are now coming on stream,’ said a spokesperson. ‘We would hope that their increased capability would enable them to secure an increased share of the market – but obviously that is not easily done.’
Having achieved FSC certification for its timber operations at the second attempt, Coillte believes that some of the extra capacity will be absorbed by increased exports, especially to the UK.
Cheap imports
There is also the problem of cheap timber imports, particularly from the Baltics and Scandinavia. The weakness of the Swedish krona and the consequent effect on timber prices there has resulted in an increase in exports to Ireland and the Continent. Twelve months ago Sweden’s currency stood at around SKr10.25 against the punt, compared with about SKr11.5 today, making Swedish timber imports far more competitive. Whereas the price of kiln-dried construction timber stood at around SKr1,600 per m³, it is now nearer SKr1,550, contacts report. This equates to a price to Irish sawmillers of about I£140 per m³ delivered.
‘Currency alone is causing a problem in terms of pricing,’ said one contact. ‘We’ve all heard stories that Swedish sawmills are losing substantial money. You have to ask the question: are the Swedes dumping material on the European market?’
If these mills really are losing money, they should either be going out of business or increasing, not decreasing their prices, he said.
Despite the downturn, a significant number of contacts claim they have seen signs of an improvement in the level of business in early May and some predict a late rally in the construction sector throughout the second quarter.
