Serious pressure on timber prices has been afflicting the UK pallet sector throughout the early part of the year. In addition, mills in a number of countries have shown a growing reluctance to cut certain sizes.
At the same time, the UK has yet to feel the full impact of the massive windblow which hit large parts of northern Europe in mid-January, although it is understood that some UK harvesters have been lured to the region by highly attractive financial packages to help with the clear-up operation. This loss of harvesting assets has created concern in some UK quarters.
Some reports stated that the huge storms caused southern Sweden to lose a large part of the usual annual cut in the space of one night, with other parts of Scandinavia and the Baltics also said to have been badly affected. Early estimates from the Latvian State Forest Service put the volume of windblown or damaged timber in its country’s woodlands at 7.2 million m3.
These countries have focused on restoring power lines and the transport infrastructure. However, interested parties in the UK are already “jittery” about the possibility of large volumes of pallet timber suddenly coming on to the wider European market. Rumours are already circulating that some mills in the storm-hit region are set to put on additional shifts and/or reactivate mothballed lines. TTJ was told this week: “It’s colouring buyers’ judgement. They are not prepared to commit forward in case there is a flood of sawn goods later in the year.”
One UK sawmiller said: “I had positive vibes about the home-grown market this year but the windblow has created uncertainty.” He noted that large volumes of residues were going for export from the UK to Scandinavia, but that recent events could lead to a significant reduction in demand from the region.
Latvian prices up
For the moment, there are no signs of weakness in the pallet timber market. Prices of Latvian material are understood to have risen by, typically, 15-20% since early in the fourth quarter of 2004. One UK expert attributed current conditions to the diminishing number of logs reaching Latvia’s pallet mills and to the “diabolical” shipping situation out of the country. At a time when the freight market was already rising, some of the older charter vessels which had been ferrying timber from Latvia to the UK have been taken out of service, leading to a further escalation of shipping costs.
Pallet specialist Scott Timber Group, with an annual turnover of around £50m, has taken timber supply matters more into its own hands by establishing a company in Latvia to manage its purchasing activities closer to source. “We are being proactive in ensuring that we have continuity [of supply],” commented a senior spokesperson. “It’s not about price at the moment – it’s about supply.”
Alternative supplies
The dearth of supply of Latvian timber has prompted buyers to look to a myriad of other options – including Chilean and Russian – although one contact suggested that the Portuguese had “virtually priced themselves out of the market” over recent months.
These conditions should have provided the UK’s home-grown pallet timber suppliers with an opportunity to push up their own prices, but several of those contacted this week were claiming that the impact of reduced supply from Latvia had not been as beneficial as they might have hoped due to regional variation in pallet demand.
“Prices for us have been largely static even though we had expected them to rise,” said one, adding that he believed the north and Midlands to be busier than the southern half of the country.
|
“We sealed a pallet timber contract today at the highest price we have seen in well over a decade. It’s about time prices went up but there is a lot of nervousness about the scale of the increases” |
A leading UK pallet manufacturer suggested its production and sales were slightly ahead of the levels seen in the early weeks of 2004. Freight rates seemed to have peaked and steel costs had flattened out – albeit at high levels – to leave timber prices as the chief source of concern. “Historically, this is a quiet time when you can often get deals on timber, but we are not seeing that at all,” said a spokesperson. “Once the fencing and construction markets kick in as the year progresses, we could be seeing even higher prices.”
In response to these pressures, the company had been among a large number of pallet manufacturers to introduce significant product price increases at the beginning of the year. Many customers are unhappy at having to meet these elevated levels at a time when demand for many of their own goods and services has been rather lacklustre. As a result, many pallet producers are wishing for a period of timber and product price stability to avoid the risk of the market becoming over-heated. One source commented: “We sealed a pallet timber contract today at the highest price we have seen in well over a decade. It’s about time prices went up but there is a lot of nervousness about the scale of the increases.”
On the news front, the advisory council of the UK Wood Packaging Material Marking Programme (UKWPMMP) met in early February. It has since issued a confirmation that any item of wood packaging complying with the ISPM 15 phytosanitary standard must be re-treated and re-marked following repair. “This includes repaired, recycled and re-manufactured wood packaging material,” it said. “For example, pallets marked HT that are repaired must be re-heat treated in their entirety (ie the complete pallet). The accreditation mark of the repairer must be applied, and all previous ISPM 15 marks must be removed.”
The advisory council is prepared to consider exemptions where parties can demonstrate that they have “adequate control of the repair system to ensure that by using only treated components the entire piece of packaging material is ISPM 15 compliant”. Such exemptions will require a “rigorous audit”, it said.
Inspection schedule
Meanwhile, each site at which wood packaging material is repaired will have to belong to the UKWPMMP and will be subject to two inspections per year, according to the advisory council. “Unannounced inspections may take place at any time,” it added.
In comparison to pallets, the UK fencing sector has been somewhat less frenzied over recent months. Relatively good weather has helped to improve demand of late but the majority of companies are not anticipating a significant upturn in domestic orders ahead of the immediate run-up to Easter, which falls in late March this year. Several contacts pointed to a shortage of round blanks and also to fencing demand levels above the norm for this time of year. Most producers suggested this week that competition in the market place has been sufficiently strong to minimise the scope for product price increases, although several reported having implemented rises of between 5-6% since the start of the year.
Impact of TV
Rising property prices and the impact of TV garden makeover programmes were identified this week as key factors behind growing demand for the more decorative forms of fencing as well as for trellis, pergolas, gazebos and other garden buildings. “Decorative garden structures such as arbours and gazebos are going very well and we have launched 12 new lines in this area,” said one company. “There are signs that people are preferring to stay put in their properties and are prepared to go more upmarket.”
One leading UK supplier of fencing and other garden products reported that it was running slightly ahead of budget for the final quarter of 2004 and early 2005, but went on to bemoan the fact that strong competition in the market had made it impossible to pass on the full quota of cost increases to customers.
Not only have timber prices sustained substantial increases, but also steel has been attracting surcharges owing to the strength of world consumption which surged through the 1 billion tonnes barrier for the first time last year.
