Ireland’s economy has gone from the boom of the Celtic tiger in the 2000s, to the bust of the global recession fallout in 2008 and it’s now booming again as the fastest growing economy in the eurozone.
The Celtic tiger days may be over but some are dubbing this recovery the Celtic phoenix. The government forecast of 6% growth in GDP in 2015, led to "a pep in people’s step again", one contact said, but this doesn’t tell the full story. Household debt levels are second only to the Netherlands in the eurozone, more than one in eight mortgages is in arrears and stricter lending criteria for mortgages means increasing demand for rental properties, and rising rents.
"It’s now cheaper to buy a three-bedroom semi-detached house than rent, as long as you can afford the deposit," TTJ was told. "Rents are going through the roof, homelessness is increasing and there are more repossessions."
Under phase one of its Social Housing Strategy 2020, the Irish government has set a target of 18,000 units of social housing to be built by the end of 2017 but, even when private housing starts are taken into account, the figure will be well below the 90,000 annual starts recorded prior to the global financial crisis in 2008. As a result, Ireland’s housebuilding is not a ready market for Irish mills.
"Every month Ireland outstrips the government’s revenue forecasts," said one contact.
"The country is more active, there are a lot of new cars and a lot of people in shopping centres but it’s still more on the consumer side. The banks are still pretty slow to give mortgages and there aren’t the developers to get the big housing projects started." RMI work in Ireland is providing some demand for timber but the UK remains the main source of sales.
"There’s plenty of reason for optimism in Ireland but, over the long term, exports to the UK are the only show in town. They’re going to account for 70-80% of Irish mills’ output for a long time," said one sawmiller. "We’re talking about 10-15 years before there’s a market in Ireland to cater for the volume that we produce."
Housing starts and the government’s will to boost housebuilding activity mean "the fundamentals are right in the UK" but 2015 was not an easy year for selling timber to the UK market.
Unprecedented volatility in exchange rates and stiff competition from other producers, in particular the Swedes, put pressure on prices. "We had massive swings in currency," one sawmiller said.
"We had the sort of swings you’d see over 12 months but they were happening week to week."
The fluctuations have continued and as the new year dawned, the pound weakened, falling to an eight-month low against the US dollar, and dropping to its lowest value against the euro since mid-October.
These currency and competition pressures are reflected in the Timber Trade Federation’s statistics which show that from January to November 2015 Ireland’s share of the UK market was down 14% year on year.
Germany’s market share also fell, by 16%, but Sweden, Finland and Latvia all made gains. Not only did Scandinavian producers make the most of currency advantages but they, amongst other softwood-producing countries, were looking to place product that until recently would have been snapped up by China and North Africa but these markets are now slowing.
This is illustrated by the latest trade figures published by the Swedish Forest Industries Federation which show that from January to November 2015 Sweden’s sawn and planed softwood exports to Egypt fell by 13.8% year-on-year while those to the UK rose by 4.5% to 2.54 million m3.
Doubts over China’s economic health are likely to continue, creating jitters in commodity market and stockmarkets. In December the Caixin/Markit purchasing managers’ index in China slipped to 48.2, marking the 10th consecutive month of shrinking manufacturing activity. Publication of the survey was one factor behind China’s stockmarkets plunging so dramatically on January 4 that trading was suspended. With so much uncertainty and nervousness over first, the Chinese economy and now the global economy, share prices in China and around the world have continued to tumble. One sawmiller described 2015 as generally a flat year, without any notable peaks or troughs, and he believed that Irish mills had sold all their production.
While this stability in sales, and therefore production, might normally be welcomed, the competition from imports meant it was accompanied by a dramatic fall in prices – down to levels which hadn’t been seen for four or five years, said one contact.
"I’ve been in the trade for quite a while and I’ve seen it all," said another contact. "I’ve seen the peaks, the troughs, the storms, the quiet times and the good times, but I can’t remember prices dropping so dramatically over such a short period of time."
He said towards the end of last year one of his UK customers had placed an order with another supplier for 400m3 at a crippling £20/m3 below the contact’s price.
"Anyone can handle £5, maybe £10, but you can’t handle £20 or £30/m3," he said. He predicted that prices would not fall much lower "but I said that a month ago and they did", he said. However, prices would also not rise in a hurry.
"Now because of what the mills have done we’re going to head into a very difficult year in 2016 to get the price back up," he said. Faced with competition from imported carcassing grades, mills that would have traditionally been cutting carcassing in early winter switched to fencing, "swamping the fencing market", TTJ was told.
Another sawmiller was more positive: "the only way is up", he said, and while he acknowledged the downward pressure on prices, he believed that Irish and British mills would rise to the challenge.
"Unfortunately the home-grown price is dictated by imports which are aggressively going after market share but I don’t see the home-grown industry just lying down because imports are being competitive," he said. "I think in 2016 we could see a fight back by the home-grown mills to take back market share and I don’t believe it’s viable for the imports to stay at the level they’re at." In home-grown mills’ favour was the ability to provide a service and product range "that you can’t buy ex-quay from an importer", he said.
"Although we’re dealing with a product that’s a lower strength class [from imports] there’s certainly an advantage in the mix of products and the service we can give," he said.
Reflecting the market conditions, Coillte’s log sales by volume for the year were down 3% compared with 2014 and sawlog prices fell 10-20%, depending on product category. There is some thought that the lower volume may be the result of private windblow from the February 2014 storm reaching the market. It is thought there will be less private raw material available this year but Coillte will increase its offer by 200,000m3, around 15%. "It’s a huge target," said a Coillte
spokesperson. "It’s good news for the sawmills and we hope we can translate it into sales across the weighbridge."
Also, after 17 years of holding fortnightly log sales, Coillte has introduced a new timber sales system. Under the new set-up Irish mills now buy 50% of their log needs through a contract sales event, and the remaining 50% through auctions, which have been reduced from 22 a year to 10. The annual contract volume offered to each mill is based on their purchasing history over the past few years.
"While the old auction system has served Coillte and its customers well over the past 17 years, it was time for change," the Coillte spokesperson said. "In order to allow Irish sawmills to compete and win in the vital UK export markets Coillte needs to provide its customers with greater surety of supply and price stability.
"They now have half of their Coillte volume in the bag before the year starts so they can plan better and they can service their customers better as they don’t have to wait until the auction to know whether they can fulfil an order. It also strengthens their competitive position by linking prices to end market price movements."
The same planning and customer service benefits applied to Coillte too.
"In the past a mill would be short of material and buy at auction and want it the next day. This helps us to provide much better customer service on roadside material," the spokesperson said.
He added that the increased stability would give mills the time and confidence to invest. "With a fortnightly auction and it’s 60-70% of your input costs the owners are always thinking about logs and log prices instead of thinking about investing or spending time in the market with customers," he said.
It would also bring benefits to the supply chain. "It provides the ability to offer harvesting contractors a full annual package of work, it will reduce haulage criss-crossing – leading to greater efficiency, allow planning minor species for the fencing season, and phasing good standing sales will generate long lengths throughout the year," Coillte’s spokesperson said.
At the first annual contract sales event last October, more than 900,000m3 of roundwood was sold.
Although not everyone was happy, generally the mills’ initial response to the new system had been positive.
"It’s a huge progressive step forward and I have to compliment Coillte. For the longterm viability and security of the business it’s a very good move," one sawmiller told TTJ. He also acknowledged the administrative benefits of not having to focus on a fortnightly auction.
Coillte will review the new sales system mid-year.
