When Irish sawmillers look back on 2013 and consider their prospects for the new year, they may not quite be popping champagne corks but there is a sense of optimism.
Ireland exited the bailout programme last Sunday – the first eurozone country to do so, unemployment has fallen to 12.8% – the lowest it’s been since 2009, the government says 1,000 jobs are being created each week and exports are at an all-time high, and healthy GDP growth of 2.1% is forecast for 2014.
But while the signs are positive, and the bailout exit is psychologically important, the country’s economy is far from a recovery. Ireland has 300,000 fewer people than it did four years ago, thanks to emigration, and the austerity programme will continue.
"It’s not to say it’s all over," one mill told TTJ. "In many regards we could be moving from high dependency to another ward. We’re not at the door of the hospital yet."
After a low first quarter, the all-important UK market picked up for the mills and they’re encouraged by the positive growth projections for construction next year. Even the Irish RMI market is showing some signs of improvement, although it’s generally confined to the larger urban areas in the east. And one sawmiller was quick to point out that the pick-up is coming from a very poor base.
"People start putting out statistics, but 10% of nothing is nothing," he said.
Having said that, one builders merchant reported that November was his best month since 2009, and a large part of that was timber sales – and he expects the good fortune to continue next year. The improvement in the RMI market was reflected in many of his customers requesting an increase on their credit limits. Overall turnover for 2013 would be up 10% on 2012 but the growth in timber sales would be higher, he said.
While the vast majority of the merchant’s timber stocks are home-grown, it is the UK that is keeping the mills busy, and they’re quietly confident about the market next year.
"All current metrics indicate a positive year for UK construction," said one sawmiller. "Customers have eased off a little now, but that would be expected. Last week our sales matched production; if that’s happening in November/December it would indicate that when the season kicks off in March there’s every chance there will be a shortage of timber for construction."
Low stocks
Another mill agreed, and feared that an element of panic could emerge in the UK market. He said increased demand from Asia and the Middle East, who were buying timber "like it’s their first toy", and customers carrying low stocks meant orders would be placed right up until Christmas.
"There will be no timber yard anywhere that will be refusing timber on the 20th; in fact they’ll open their doors on the 23rd to take it in," he said. "This time of year they should be building stock for January, but they haven’t got it.
"That storm in October, I prayed it didn’t hit the UK because if it had, there wouldn’t have been enough timber. We are one small disaster away from major panic because there isn’t enough timber on the ground to react quickly." While the UK market may become more competitive with an increase in building activity and firming prices, it is believed home-grown’s price advantage over imported material will protect its market share. It can also meet just in time delivery needs.
The improving demand for timber is pushing up the price of logs in Ireland. At Coillte’s final auction of the year, which was for 2014 material, prices had risen to around €90/m³, up from €76/m³ at the previous auction.
One sawmiller blamed the mills for edging up prices, but acknowledged it was a combination of Ireland’s auction system and mills’ demand for logs. "All we’re doing is giving our money straight back [to Coillte]. The prices are going up and if you want to supply the market you have to buy," he said. Another pointed out that the higher log prices were eroding any gain made in sawn timber prices.
"There have been some increases in sawn timber selling prices but they’ve been lost in the log prices so our margins have been squeezed even further," he said.
He remained "comfortable" about UK demand for timber in the first half of next year but not about the company’s margins. He was critical that Coillte was not meeting its log supply forecasts but a spokesperson for the state-owned forestry company said it was supplying in line with the 2010 five-year forecast.
"This year we offered to the market 1.79 million m³ which is ahead of target, and we’ll be offering a similar volume next year," he said. While the log volume remains an issue for the Irish sawmillers they realise there are no easy solutions.
"It’s not an easy one to round," one told TTJ. "Unless there’s further consolidation in the Irish sawmilling industry, it’s unlikely to change. "We have about 15-20% overcapacity but we’ve handled it for 20 years. Back in 1990 the sector was processing 1 million m³. Around 2002 it was 2 million m³, and now 2.3 million m³ is being harvested in Northern Ireland and the republic. At each stage we said if we had a little bit more we’d be OK, but 1 million became 2 million and still it isn’t enough, so it’s not going to go away."
Another pressing issue for Irish mills is the potential merger of Coillte and state utilities company Bord na Mona. The timber industry breathed a collective sigh of relief in June when the government shelved plans to sell Coillte’s harvesting rights but the current proposal also causes concern.
"Bord na Mona consumes wood residues for energy production, and Coillte via SmartPly and Medite buys wood residues so if they become one it could close off market potential," one sawmiller said.
Documents regarding the merger are now with the government’s steering committee but no date has been set for a decision.
