Ireland’s sawmilling sector has been visited by an unholy trinity over the last 12 months, facing the triple whammy of Covid-19, Brexit and the felling licence debacle. Of the three, it is the latter that has caused the most anguish.
At the time of research for the last TTJ report on the sector, emergency legislation had just been passed and there was hope that the backlog of felling licence applications and the consequent log shortage would be resolved quickly. It hasn’t quite panned out that way – but there is improvement.
“It’s not solved yet but it is a lot better,” said a Coillte spokesperson. “The legislation has made a massive difference to the volume of new appeals, so we’ve gone from the situation we had back in August/September where the appeal rate was about 80% to now where it’s about 5%.”
Effectively, this should give the Forestry Appeals Committee (FAC) the chance to catch up, although the pace at which they are hearing appeals “hasn’t increased dramatically”, so there is still plenty of roundwood trapped in the system.
Coillte doesn’t have many 2021 licences left to be issued but still has “quite a significant amount” with the FAC. The problem now is that road permits have to go through the same process and these are not being issued fast enough, so even if Coillte has the necessary felling licence, in some cases it’s not able to access the site.
A third hold up of volume is the 28-day window, during which licences that have been issued can still be appealed.
“We have 600,000m3-700,000m3 of volume tied up for various reasons,” said Coillte’s spokesperson, speaking at the end of March.
2020 was a year of disrupted schedules and Coillte’s business model is described as “hand to mouth – as you get it, it goes out”.
“We normally have at least one auction and our annual contract event just before Christmas but we weren’t able to run that in its normal form last year because we just didn’t have the volume,” said the spokesperson. “So we split it into two events. One was before Christmas where we sold harvested material and one was in February where we sold standing material.”
Coillte normally holds 10 auctions a year and at the time of writing, was planning to restart these in April, with a view to holding six this year.
The state forestry company supplied 19% less to the market last year than in 2019 and predicting its 2021 total is impossible.
“We certainly have enough licencing to get about a million m3 across the weighbridge at the moment but how much more we are able to do this year depends on the availability coming back. Our normal programme would be 1.65-1.7 million m3.”
Coillte’s chief executive, Imelda Hurley, has gone on record as saying it will take all of 2021 to get its business back to normal operations. “I would look to 2022 as the year when we’ll be building back up and really getting on with the business that we run on a daily basis,” she said, speaking to the Irish Times in March.
This situation is replicated in the private sector of course and much of that doesn’t have Coillte’s resources – or, perhaps, its clout with the Department of Agriculture, Food and the Marine (DAFM), with which the blame squarely lies.
The view is that those private growers who have mature assets that they would like to liquidise and who have felling licences would be keen to come to the market because log prices are so high and end markets are extremely buoyant.
But for those at the beginning of the growing and licencing journey, it’s a different story. The current situation has shaken people’s confidence and planting figures are down substantially.
“One of the things that is so disturbing is that planting is at such a low level,” said a major sawmiller. “Just 2,400ha, which is 57% down on 2017 and the government’s own target of 8,000ha. The whole thing is a mess.”
The reaction from sawmillers is mixed – for example, one fencing and pallet specialist said phlegmatically “we still have this problem with felling licenses but logs are still coming and it will get sorted”, while others refer to the situation variously as “catastrophic”, “frustrating”, “a saga in itself” and “a shambles”.
“It’s as though everyone sat around a table and said ‘things are going grand around here, how are we going to mess things up?’” said one contact, expressing the exasperation of many.
However, they are all united in the view that this too shall pass and that nothing will stand in the way of their commitment to supplying the UK market.
Some have supplemented their log supply from outside of Ireland.
“In the second half of last year we survived by upping our intake of logs from Scotland,” said a major sawmiller. “We are paying dear for every bit of private material we can get.” Others say they have never imported roundwood.
“All the timber we buy is from the island of Ireland,” said a major sawmiller. “Log supply was tight in the second half of 2020 but we were lucky to be in a good stock position. We identified a lot of private material – the log price went up, people started to sell and we were able to take advantage of that. Being bold in our procurement has left us in a strong position.
“The whole thing about the felling licence issue is that if it wasn’t cut last year, it’s still there to come forward. It might be delayed for a year but at some stage it will be licenced.”
Another major primary processor said they had looked at importing but “the costs were prohibitive”.
“We are fortunate that the contracts we had have kept us in good stead,” said the contact. “It is a bit better than hand-to-mouth, so we have sufficient supply. But meaningful planning is being very badly disrupted and in terms of efficiency it’s not working. A very minor cock-up could create a shortage.”
Log prices have been very high, of course, but some of that pain is mitigated by sawn prices, the likes of which have never been witnessed before.
“We have been in a kind of market bubble,” said one commentator. “Obviously we’ve had supply constraints in Ireland but there is a shortage of timber globally. The US prices are the highest they’ve ever been, China has massive demand and what that means is that importers into the UK have an opportunity to direct their supply elsewhere. The market prices Ireland’s sawmills are receiving are at their highest level.”
This is also impacting those mills importing sawn timber, of course. “Sawn prices are moving up, particularly with German imports,” said one fencing and pallet wood specialist. “We’re trying to buy imported timber now and its around £100/m3 up on this time last year,” said another, speaking in March.
A February year-on-year comparison revealed that one major primary processor was down 8.8% on volume sold (it had a lot of stock on the ground in February 2020) but up 26% on revenue. Its figures for March 2020 showed that untreated KD C16 was fetching around £160/m3, down from £209/m3 in March 2019, due in part to the general election and Brexit issues.
“In March this year it’s gone up 66% to £266/m3,” said the sawmiller, adding that he anticipated that would rise to £275 in April, representing an uplift between March 2020 and April 2021 of 71%.
The average price for another prime commodity – treated featheredge – was £220/m3 in March 2019, £191/m3 in March 2020 and, at the time of interview, was set to hit £305/m3 in April.
The cause of the increase, said the contact, was the pull of demand and the push of log prices and he didn’t see it stopping.
“I think by the end of 2021, home-grown KD C16 will be £330/m3. I’m already hearing that merchants who are selling C24 are talking about £400/m3. I’m also hearing that roofing battens are being sold at £400/m3 – it’s unheard of.”
The rise in sawn prices is welcome, obviously, and for some it was an inevitability.
“As a commodity, timber was way too cheap, especially when you look at all the costs involved,” said a major sawmiller. “Three years ago people thought £250 for C16 was never going to happen but I said it would be here soon. The market dropped in 2018/19 but now it’s going to where it was always going to be. I don’t think prices will suddenly go down again – I think they are here to stay.”
“This could be the beginning of the new norm,” agreed another contact. “Maybe timber prices are going to be 300, 350, rather than 150, 180, 200.”
A pallet specialist said sawn prices would continue to follow those in the UK and that he was having to compete for material. “Last year we were paying €160/m3 and now we’re pushing €260/m3 and we’re expecting it to go higher,” he said.
And, he added, the pallet sector is having to compete with the fencing sector for supply. “The fencing sector normally falls off from September to March but it’s been strong all the time and now we’re hitting another [fencing] peak. There is a huge run on fencing material in the UK and Ireland at the moment, to the detriment of pallet timber. This is what has been the challenge – to make sure we have got enough timber to cover both sectors.”
Demand has been exceptional, with one contact saying that he was “everyone’s friend but everyone’s enemy” because so many requests for increased supply had to be turned away.
“Demand has been unbelievable,” said another major sawmiller. “The demand is outstripping where we were last year but our message is that we have always had that long-term commitment to the UK. We export an average of 70% [of our production] and we haven’t deviated from that.
“What is important is that in a strong market we will look after our loyal customers.”
“We’re working normal hours and cutting the same amount of timber as last year,” said a contact from a mid-sized sawmill. “The difference is that everyone we’re dealing with wants 50% more. Lead times are going out the window.”
A major mill that includes construction, fencing and pallet timber in its mix said that its exports to GB would remain strong but that volumes would remain “normal”. What had changed was the mix, with one of the shifts for construction wood destined for consumption in Ireland being “turned into all things fencing”.
“It was the right thing to do, both in terms of demand and profitability,” said the sawmiller.
On the subject of Ireland’s domestic market, demand from the country’s own construction sector has been in the doldrums because building sites were stuck in a protracted lockdown and didn’t begin to re-open until mid-April. A sharp spike in Covid cases after Christmas had led to the restrictions.
“Ireland has faced the longest period of workplace lockdown anywhere in Europe and it’s the only country where construction hasn’t opened since Christmas – this is a big issue,” said a contact, speaking at the end of March. “We were surprised that construction was shut down bearing in mind the phenomenal housing crisis in Ireland.”
“There is huge pent up demand in Ireland,” agreed another. “Only 15,000 houses have been built these last two years and that needs to get up to at least 30-40,000 per year.”
The other trial Ireland has faced is Brexit but it’s fair to say that this has gone more smoothly than had been feared. “It’s a manageable inconvenience,” said one major sawmiller.
This, however, is almost entirely down to preparations by Irish suppliers.
One TTJ contact said it had its final plan in place in November, tested it in December and that day one of 2021 had been problem-free.
“We’ve remained as operators and that has meant we’ve been able to control everything in-house and take the burden of paperwork and customs declarations off our customers. There have been no upsets to deliveries.”
“The UK market is very busy and Brexit means extra paperwork as customs entries have to be carried out in advance,” said one fencing and pallet specialist. “Unfortunately, this prevents last minute changes to load make-ups and reduces flexibility.”
“We’re still moving material into Great Britain and Northern Ireland,” said another contact. “I believe there is a bigger issue getting material from GB into NI.”
He did note, however, that “a lack of urgency and a shortfall in administrative capacity has led to delays in obtaining phytosanitary certificates for shipments of logs and sawn timber with bark”.
Another contact remarked on the “lack of clarity on phytosanitary certificates from all parties”.
However, one pallet manufacturing contact said he’d “ramped up dramatically” on kiln capacity to ensure his company had sufficient ISPM 15 capability. “A lot of our product is exported so we had to be ready to roll.”
