Fencing manufacturers laid down plenty of stock for the first quarter and the run-up to Easter, which is just as well as sawmills are experiencing “unprecedented demand” for fencing material.
“All the sawmills within our group are on three to four-week lead times and we’ve just started a double shift at our main mill,” said a sawmiller. “If I was to look at our order book I would have to officially put the sold out sign up.”
As the weather beyond Easter had continued to be poor, this level of demand was causing some concern.
“We and some of our competitors are worried for the same reason – we’re all pretty much flat out but if the weather picks up we may have an issue.”
Stocks at the sawmills are low, thanks to the combination of steep prices set by timber growers and to the sustained period of bad weather restricting access to the forests.
“We all hit the end of November with not a lot of wood in the supply chain and then we have had three months of disruption so we’ve not been able to get ahead of the game,” said a sawmiller. “We have managed to exceed our production plan for the last two weeks, which is great, but we still have nearly three months of deficit to make up.”
Another sawmiller said that the message seemed to have got through to customers that had been caught out in previous years that they really needed to build up their stocks.
“While there are some people flapping because they can’t get posts or featheredge, there are a lot who can get it because they planned ahead. They got orders through in December and rolled them through into January and February. That is quite refreshing for us.”
Another said his company had started contacting customers in November/December last year to advise them that supply could tighten early in 2018 and “50% said they’d better do something about it and the other 50% sat on their hands because they weren’t sure. That’s why we have the lead times that we do”.
Longer Lead Times
Lead times from three to four weeks are being accepted as the norm, but some mills are quoting four to six weeks. This applies for both fencing and pallet material.
“Once the fencing season kicks in all the sawmills’ 16mm pallet board material is generally diverted into fence panel battens – at significantly higher prices – and that puts more pressure on the 16mm pallet board market.”
Demand for pallet wood is also said to be “unprecedented”, not necessarily because of the market but because of the squeeze on supply (see pp22-23). Sawmills have struggled to obtain sufficient roundwood, particularly in the face of competition from the biomass sector, and what they can source they are value adding to maximise return.
With availability of those smaller logs said to be down by more than 30%, pallet wood is a casualty.
“I think it was fairly well balanced for the majority of last year but when you take into the account the production cutbacks that the major sawmills have been forced to take [said to be anywhere between 10-20%], that has been enough to tip the market over into an undersupply,” said a contact.
“You used to have a low price for biomass, a mid-price for pallet wood and a high price for construction and you used to have a spec that, broadly speaking, stopped at 12cm for biomass and started for construction at 16cm and the bit in the middle was for pallets.
We’ve now seen two squeezes – the biomass boys will now go well beyond 16cm and some of the sawmills are, understandably, going down to 14cm, so the space in the middle that used to belong to pallet wood doesn’t exist to a great extent any more.
Then there is the price squeeze on top.” He added that there was the potential for pallet wood prices to go up £15-25/m3 over the next five or six months – it could hit £190/m3 by the end of the summer. “It has to be that level given the price we are paying for logs,” he said.
One sawmiller said it was conceivable that pallet wood would have to be cut from other logs or sideboards in the future and that it would “no longer be the poorer cousin of carcassing”.
Another sawmiller said conversations with his customers weren’t so much about the price for the next quarter, or month, but were about availability. “There isn’t enough material to go around and that is putting huge demands on imported material, which also isn’t really there.”
Just as one man’s meat is another’s poison, the relative scarcity of imported pallets is welcome for some.
“One advantage of a poor euro to sterling exchange rate is that imports are more expensive and, as such, the UK is not such an attractive market for EU producers,” said a pallet manufacturer. “They are also experiencing high domestic demand, so have the ability to sell their production locally.”
It is a very fluid situation, however, and he said that as timber prices have risen in the UK the “pressure-release point where imported timber looks more attractive” might have been reached.
“We are seeing more offers of raw material from northern Europe and the Baltics than we have done for the last 18 months,” he said. Pallets and packaging market demand is steady, he said, although construction products companies have only just started to get busy after the poor weather.
Pallet Prices
In response to sawn timber costs, pallet prices rose in the region of 10-15% in the first quarter, he said. “And in some cases, more for non-standard products.”
Rising prices have resulted in some customers hanging onto their pallets for longer.
“So when they come back to us they are in a worse state,” said a contact in the new and reconditioned pallet sector. “And those customers who would normally buy new are buying reconditioned.”
Some customers have been reluctant to commit to the rising prices but more recently have reached a better understanding of the pressures on supply. This is just as well as prices aren’t showing any sign of coming down, or even slowing down.
“I would say the average sawn price has risen over the last six months by 20-25%,” said a sawmiller. “It’s a significant rise but during the same period the price I’m paying for round timber has increased by 40%. There is a considerable disparity.
“From our perspective, until the log suppliers really get to grips with the prices it is going to cause increasing volatility with the markets,” he said.
