There is a lot of positivity in Ireland at the moment and it’s not all down to their rugby prowess and winning the Six Nation’s Grand Slam last month.
The European Commission has reported Ireland’s economic growth at 7.3% for 2017 – signifi cantly more than the 4.8% it had predicted last autumn – marking the fastest growth rate in the EU last year. It’s showing no signs of being kicked into touch this year either, with the Bank of Ireland raising its growth forecast for 2018 from 3.8% to 4.7%.
Construction activity, the universal barometer of the health or otherwise of a nation’s finances is pointing to “a very encouraging picture” for the Irish economy, according to the Ulster Bank Construction Purchasing Managers’ Index (PMI).
The PMI found that Irish construction companies made a strong start to 2018, leading to high levels of confidence and an expectation that further improvements both within the sector itself and the wider economy will bring even greater rewards.
Rising workloads have led construction companies to increase their staffing levels and the rate of job creation has accelerated sharply. The Central Bank has gone so far as to say the country is back within sight of full employment.
There is plenty for the Irish to be pleased about but they are certainly not in la la land – they know there are challenges and uncertainties ahead, chiefly the status of the border between Northern Ireland and the Republic post-Brexit.
“There was a lot of positivity around what was agreed pre-Christmas about not having a hard border on the island,” said a contact.
“But it’s become a bit blurred again. There is a real ‘wait and see’ around what the latest negotiations are going to come up with but we have got to move from the hope phase into the reality phase and get to the point of adjusting business to deal with that reality.”
On the macro level there are concerns around dividing communities and the potential impact on the peace process; on a more local level there is anxiety about the movement of freight.
“There are a lot of trucks carrying timber between ROI and NI and there is concern about how that could be made to work in a sensible manner,” said a contact.
Then there is the east/west traffic, he added. “A lot of our mills export finished goods to Britain and one of the key advantages they have is that they can deliver more or less on the next day. Borders will slow that down, so what is the best way to deal with that? Do they start creating depots in Britain? Unless you know what is going to happen it is hard to plan for it.”
“The economy is strong but uncertainty around Brexit overshadows it,” agreed a sawmiller.
“Administrative costs associated with Brexit, such as customs documentation, will be a problem in the future, adding to the price of timber for UK customers,” said another. “Speed of service and delivery may also be affected.”
The UK remains the single most important market for Ireland’s timber and contacts say it will remain so – even though the domestic economy is strengthening while the UK’s wobbles.
“The Irish economy is relatively buoyant but no matter how good it is it is very dependent on the UK market to move more volume,” said a sawmiller. However, he did add that his business was making “every effort to increase euro sales” and that it was successful in this regard.
Another said he was still exporting the same percentage of his product to the UK and “could be doing more there” but with the exchange rate uncertainty he was hedging his bets and splitting his sales between the UK and Ireland.
He also pointed out that the recovering construction sector in Ireland wasn’t making much of an impact on demand for Irish grown timber.
“I’m not seeing a huge demand in new build timber and I fear with the labour shortage we could be looking at a lot of timber frame houses, which will be made with imported timber,” he said.
The other dynamic affecting business is what is viewed as the “deteriorating” economy in the UK and the fact that other exporting nations and regions are starting to ship product elsewhere in search of better prices, thus leaving more space in the market for Irish timber.
“The economy in the UK will be affected by Brexit in that business will not invest based on political hyperbole,” said a contact.
“This is already evident. Of course exporting companies will gain some traction but in terms of timber the UK is a net importer.
Scandinavian countries have already moved to China and the US for sales and this looks set to continue. It is important now, as always, to communicate with UK customers about the challenges we both face.”
Those challenges include the pressures on global supply. While Brexit worries are hanging over many heads, perhaps a more acute concern is the shortage of timber.
“The biggest worry is the cost of logs and the availability of raw material,” said a sawmiller.
The squeeze on supply started several months ago and the once traditional easing up on demand over Christmas seems to be a thing of the past.
“Our end of year stock took about an hour-and-a-half to process, whereas it would usually take six,” said a sawmiller. “Our stocks never recovered. Christmas was a major interruption and there was no stock here at the end of the year “January is probably the new December; however, this year January was very busy.
And demand in February was unprecedented. Anyone who didn’t put timber on the ground over the Christmas period would be seriously regretting that decision because prices are only going one way.”
In fact, sawn prices rose in January, February and March and, according to a fencing sawmiller, they will probably take their most significant hikes in April and May.
“Anyone who hasn’t got 10% is doing something wrong,” he said. “You could be looking at anywhere between 15-20% and as much as 30% for spot. We are heading back to where the numbers were in 2013 after the two big storms.”
Another fencing, decking and pallets sawmiller confirmed he had pushed his sawn prices up by 20% but made the point that any increases were nullified by high log prices. A contact operating in the same markets put sawlog price increases as “up 80% in some cases” while another estimated they had risen by 15-20% in the last three months.
A major sawmiller added that this was the first time in a number of years that they had seen “significant increases” in sawn timber prices in the first quarter – increases they had secured in November/December, which he said was unprecedented.
“I think it’s an indication of what is coming this year,” he said. “It is welcome but also necessary because of the increases in raw material and operating costs.”
He added that price increases for construction timber – which had finished strongly in 2017 and started strongly this year – were in the region of 5% for January and probably a similar percentage again in Q2. “The price of pallet timber has increased more and fencing by a similar level but there is a threat with fencing because there is an underlying feeling that it is going to be a big fencing year and the shortage of supply means that prices could rise very dramatically.”
Pallet prices increased very quickly over the first three months of the year. Supplies of small roundwood to sawmills have been tight and where the focus has been on adding value to those logs, the result has been less pallet wood on the market.
“There appears to be a shortage of supply and a bit of a panic amongst pallet manufacturers to secure supply – which has led to the price increases,” said a contact.
All roads lead back to log supply and, according to a spokesperson, Coillte has seen “quite strong price increases across all three product categories”. He added that its log auctions this year had been fully sold out.
“Our volume of sales to date is pretty much in line with last year,” said the spokesperson. “We are aiming to hit 1.73 million m3 of sawlog this year, which is about 40,000m3 higher than last year. Based on us keeping up the supply for the rest of 2018 we should have a good year and then it is just down to our customers to move it to the end markets, which they are all very positive about.”
They are less positive about the prices they are paying for logs, however, and they do seem to be caught in a Catch-22.
“Log prices are currently at an inflated level, way above the market price,” said a major sawmiller. “I’m not sure what it is going to take to get them back. There is a little bit of positioning going on amongst certain mills that may take some time to settle out.
“There will be more volume available in Ireland this year than ever before but people are speculating way ahead of demand on what they will achieve on prices, so they are paying above and beyond at the moment to get volume under their belt,” he continued.
Coillte is building up to consistently selling 1.8 million m3 per year but if demand continues at its current pace and if global supply remains under pressure, sawmills are still likely to be fighting for raw material. The private sector may provide a fillip.
“A lot of the private funds start to sell their timber from now into the summer so it will probably start to come onto the market soon,” said Coillte’s spokesperson. “I think you are probably looking at 300,000m3 from the private sector this year – plus the Irish mills will have a bit of imported timber as well.
“The private sector should grow from 2020 and it is supposed to exceed 1 million m3 but it is still a bit of an unknown and it will be harder to mobilise.”
One development that has caused less of a stir than might have been supposed is a Scottish mill gaining a licence to bid for Irish timber at Coillte’s auctions.
“It’s an open market and if Irish and German mills can go to Scotland and buy logs, why shouldn’t Scottish mills come to Ireland?” said one major sawmiller. “I would only say that the cost incurred by transporting logs back to Scotland would only allow them to bid to a certain level.”
“The Irish mills can barely afford to pay the prices they are currently paying for logs, let alone the Scottish mills,” agreed another, while a third added, “I would imagine after the last auction they didn’t stay watching it for too long!”
