At the time of the last focus on the Britishgrown timber sector (September/October 2022), primary processors were in the middle of a second half slowdown in demand, and that continued through to the end of the year.
“The last four months of the year were tough, but the start of 2023 was more positive,” said Scott Gordon, joint managing director of Gordon Timber.
“January was better than December and February was better than January and although I don’t think we’re ever going to get back to lockdown levels, it felt like it was getting back to a decent level of demand.”
However, the market flattened again around April time and although demand has been “quite good, it’s still pretty challenging and prices are weak, which tells its own story,” added Mr Gordon.
Demand for fencing and heat-treated export packaging products has been decent, he said, but the two areas dragging the overall demand down have been construction and pallets. And with pallets acknowledged as a reflection of the health of the general economy, that’s a worry.
Tom Bruce-Jones, chairman of James Jones & Sons, agreed that market confidence was being impacted.
“Some market sectors are performing better than others, but all are suffering from economic uncertainty,” he said. “The difficulties faced by contractors and construction companies have been well reported, with some sadly going into administration, and this is weighing heavily on market confidence.”
It’s the same message from BSW Timber Group.
“The market has remained challenging, especially throughout the holiday period, but the strength and diversity of our product offering, and the sectors we operate in, has allowed us to remain busy,” said Tony Hackney, chairman.
“Housebuilders have reduced their expected build numbers, which will affect the construction products demand, while the recent inclement weather has dampened the fencing and landscaping demand,” he said.
Price-wise, British-grown timber is still very competitive against imported timber but with “a significant reduction on last year,” said Mr Gordon.
“Prices have been very up and down and strange things have been happening, such as the price of C24 plummeting and for a time it was cheaper than C16. That seems to have righted itself and stabilised things a bit but the UK is still importing 60% of what it uses, so the import price levels have a big impact on the prices we can achieve.”
“Timber is a global commodity and British timber is by necessity always competitively priced, despite the impact on all sawmillers’ operating margins due to the rise in costs that every company is having to absorb,” added Mr Bruce-Jones.
Market volatility is also keeping the sector on its toes.
“British timber is competitive against imported, but the recent turbulence in the market has seen pricing from all regions become more dynamic,” said Mr Hackney.
The impact of sanctions on Russia and Belarus took some time to bite and, depending on their product portfolio, not all UK mills have had significant direct exposure. Exceptions have included access to Siberian larch, round fencing and – eventually – pallet wood.
“The sanctions have all but eradicated Russian and Belarussian products in the UK, which has had a knock-on effect, in particular, on the availability of eastern European pallet, fencing and landscaping products,” said Mr Bruce-Jones.
“It took a while for pallet wood to be affected – probably from the second half of last year – but it’s been more affected in the first half of 2023, that’s for sure,” added Mr Gordon.
However as Tony Hackney pointed out, “this volume has been replaced by imports from other countries and so demand in the UK has been relatively unaffected”.
The war in Ukraine has exacerbated energy costs, which were already on the increase before the Russian invasion, and they have now become an uncomfortable reality, with mills grateful for small mercies.
For example, having feared a threefold increase in energy costs when recently renegotiating its deal, Gordon Timber secured a fixed tariff nearer 50% up on the previous deal, which, said Mr Gordon, “feels like a bargain”.
“The reality is though, that it’s a massive extra cost that will be hard to pass on, so it really is straight off the bottom line.”
The company was ahead of the game when it installed biomass boilers in the late 1980s to dry timber and is now exploring ways in which it can further reduce its dependency on electricity direct from the grid, including looking at solar options. The purchase of two new electric forklifts progresses a move away from direct use of fossil fuels.
James Jones is also working hard to mitigate dependency on the grid.
“Rising energy costs remains a significant challenge at all of our processing sites in the UK and Australia, which are by nature high energy consumers,” said Mr Bruce-Jones. “We have added new biomass boilers at two of our pallet sites this year, and made investments in solar panels at our Lockerbie site. We are evaluating the performance of these panels and have plans to significantly increase our roof coverage across the UK and Australia.”
The company purchased the UK’s first subsidy-free windfarm to the west of Glasgow last year, with the aim of reducing carbon emissions across the Group. The windfarm has an output of 24MW and has performed satisfactorily, “although wind speeds during the summer have been slower”.
James Jones has also continued to roll out electric forklift trucks and sideloaders and has increased its fleet charging capacity at its key sites.
As previously reported (ttjonline, June 29), it has also started a trial of an electric powered truck in partnership with Volvo Group and Cleaner EV and, said Mr Bruce- Jones, “the initial feedback is very positive”.
BSW said it is doing everything it can to mitigate the impact of high energy costs and added that in terms of haulage, while availability has improved, costs to its haulage companies continue to increase.
“Despite the recent reduction in fuel costs, fuel surcharges remain an issue,” said Mr Hackney.
Log availability is reported to be reasonable and is balanced with market demand, although there is a view that the industry has become a victim of the huge prices that were achieved for logs during lockdown.
“It was a profitable time for the industry and everyone in the supply chain benefited from that, but there is now an unhealthy expectation – partly driven by agents – of what can be achieved currently,” said Mr Gordon.
“People have got to face the reality that it is a cyclical market. We all enjoyed the big prices but the market has changed and come back and the way it will continue to function is that people will keep bringing logs to market. Forestry & Land Scotland is good at that and there is consistency there but I think the private sector is not bringing forward the volumes we expect or need, so there is a bit of concern there.”
James Jones’s sawmills have responded to the volatility in market demand, and have proactively managed shift patterns and mill operating hours to avoid excess sawn stock build ups. “Our bought forward position on logs is in balance with our demand forecasts,” said Mr Bruce-Jones.
He went on to say that, in terms of output, throughout the majority of 2022, production levels were around 25% below capacity and adjusted to account for and reflect a general reduction in demand from mainstream market sectors. However, in response to improving sales demand and to avoid extending lead times, production levels were increased at the end of Q1 this year and through the early part of Q2.
“Our sawn stock levels are monitored by our production planning teams in conjunction with our sales teams,” said Mr Bruce-Jones. “Forecasting is difficult due to the economic uncertainty, but the mill holiday season is over and we are responding and reacting to all enquiries and orders to keep all of our customers stocked and competitive.”
Meanwhile, at Gordon Timber, output is currently “steady as she goes”, with more capacity available – say 10-15% more – as and when the market improves, and sawn timber stocks are at ‘Goldilocks’ level’ – ie, “just about right”.
“Our sales team has done well and is making the most of the demand that is there,” said Mr Gordon. “Stock levels are healthy and we’re ready to serve customers as we need to, but they are probably lower than they were this time last year, so we feel positive about that. We’re in good shape.”
Having realigned its infrastructure earlier in the year, BSW said it is now running at 100% of planned hours and that stock levels have been corrected.
“The aftermath of Covid, compounded with the cost of living crisis, meant there were high levels of stock throughout the supply chain,” said Mr Hackney. “This has generally been corrected now, and stock levels are low going into the winter period, where we forecast for them to rise in preparation for next year’s fencing and landscaping season.”
Investments have continued apace. For example, Gordon Timber has its new round timber automatic stacking line successfully up and running and is “delighted” to get its first robot onto the site.
The main driver for the circa £1m investment was health and safety, in particular with regard to manual handling but the line has also improved efficiency, improved the final product, and allowed Gordon Timber to realise the round fencing line’s production capacity.
“Robots work best when it is a repeating process or function, so the challenge [of applying it] to a natural product with variable diameter, variable length, tapers and various forms was considerable,” said Mr Gordon, adding that the incorporation of a 3D scanner had been part of the solution.
The component parts of the automatic stacking line were supplied by “a United Nations” of manufacturers, he said, including those in Germany, Italy and the UK.
Gordon Timber is investing a further £2m in a range of projects, with £1.25m of that committed to “second pass main line machinery”.
“We are replacing some of the machinery in the second part of the log breakdown in our main sawmill, which will give our sawn timber yield a significant boost,” said Mr Gordon. “It will help us recover more from our logs, increase our production levels and reduce costs. We have started the first phase of that and the second phase will be completed at the end of the year.
“We also have a new moulder coming in the autumn, which will give us improved product quality, shorten our changeover times and increase our secondary processing capacity,” he added.
The company is also spending “a significant amount of money” in the yard, including improving the running surface, the log storage capacity and site security.
James Jones has also been super-busy with investments, with planning applications for two new sawlines approved and these projects now at different stages of development and refinement.
“The fire-impacted sawline at Kirriemuir will be back to full production by the end of the year once the replacement equipment is fully commissioned,” said Mr Bruce-Jones. “Our sawmill division has also invested in further low and high pressure treatment tanks to meet market demand.
“Our pallet and packaging sites have also benefitted from significant capital expenditure programmes, and new highly automated lines with robotics have been commissioned,” he continued. “And we have added more stock storage facilities at various sites, as well as increasing our forestry portfolio through land purchases.”
James Jones’s investments and interaction with its 2022-acquired Australian businesses, Hyne Timber and XLam,” is progressing very well”, said Mr Bruce-Jones.
“Our new CEO, Jim Bindon, started in May upon the retirement of Jon Kleinschmidt and he has made an instant impact on the business, despite the similar market challenges and input cost increases that we are experiencing in the UK.
“Our acquisition of Rocky Point in Q1 2023 (ttjonline February 14) has allowed us to vertically integrate in our co-product segment, and to diversify our product offering to our key customers. We have hosted a number of UK visits by Australian colleagues and customers, and our production teams are working closely to extract as many synergies and operational improvements as we can.”
Mr Bruce-Jones added that further acquisitions are likely.
“We are in discussions with a number of different parties in the northern and southern hemispheres about possible tie ups and acquisitions, some of which will allow us to diversify our product offerings, others to expand,” he said. “We anticipate further consolidation in the global forest products sector.”
BSW, which itself is a member of Binderholz, has also been on the acquisition trail, of course, with pallet manufacturer Scott Group being brought on board at the end of last year (ttjonline December 5, 2022) and Power Sheds last summer (ttjonline August 11, 2022).
“Scott Group was one of our valued customers for many years, so in many ways we were already aligned with the business strategically,” said Mr Hackney. “This meant that the acquisition fitted smoothly into our vertical integration strategy and diversification of products. We are already working on a number of projects, and the business has reverted to Scott Pallets, with its identity now matching that of the other subsidiaries within BSW Group.
“The acquisition of Power Sheds has gone well, and we will continue to develop both the offer and the markets in which we operate, with a number of key BSW Timber customers already selling the sheds online,” added Mr Hackney. “Next year will see us move forward further both in terms of products and scale.”
Last year also saw BSW Group invest £4m into a new 25,000m2 mini-plug production facility at its Maelor Forest Nurseries business (ttjonline October 17, 2022).
“Maelor supplies approximately 35 million saplings annually, and its activity underpins our efforts at Tilhill, which plants many of these and subsequently manages the woodlands,” said Mr Hackney. “The marketleading laboratory facilities also allow us to conduct research on improved Sitka spruce, as well as other commercial and non-commercial species.”
James Jones has also been active in product development, recently launching its new JJI Wall Stud, which was developed as a solution to satisfy changes in insulation regulations in timber frame requirements (TTJ July/August).
“More than ever there is a need for highly insulated, healthy homes and the JJI Wall Stud, in combination with different types of insulation, helps achieve this,” said Mr Bruce- Jones. “We manufacture the JJI Wall Stud in easy to handle and easy to cut lengths to offer flexibility to the off-site manufacturing process. We are exploring various product innovations to coincide with these changes.
“We are committed to supporting a programme of continued investment and other recent innovations have included development of our JJI Design and Joist Master Software, in addition to the expansion of a new stock yard in 2022 to enable us to ensure security of supply within industry best delivery timescales,” he added.
Twelve months ago the main challenges for the year ahead were cited as demand, energy and fuel costs, and labour and the first two of those certainly lived down to expectations.
“The challenges for us will be the ability to absorb the energy costs and deal with the level of demand as we go into a period that is traditionally a bit quieter,” said Mr Gordon.
On the labour front, however, Gordon Timber is in a much more positive place, having been successful in attracting a number of new people to the business.
“They have settled in extremely well and have great enthusiasm, energy and new ideas and we have a real opportunity to demonstrate to them that we will provide a fulfilling career for them and that they can positively impact the running and the success of the business,” said Mr Gordon.
And, he added, in terms of market conditions, he remains optimistic for Britishgrown timber in the medium to long term.
“It’s a fantastic product with excellent green credentials and it’s great to be making something in the UK, so I’m very optimistic and feel that, come the springtime, things will be better.”
Tom Bruce-Jones agrees that the picture is going to be mixed but that the British-grown timber sector is in a good place.
“The market dynamics, input cost challenges, economic and political uncertainty, impacts from the Ukrainian conflict and cost of living crisis will remain as acute in the next 12 months as this year,” he said. “However, the shortage of available housing in both the UK and Australia is a very high political priority, and we expect further stimulus packages or incentives to drive the market forward.
“The timber sector is well positioned to meet this demand, particularly as economies recover, but we need to remain vigilant to the threat of the devastating global wildfires, pests and diseases that have impacted the forestry industry, whilst maintaining the pressure on governments to plant more trees to lock up carbon and offset climate change.”
“The volatility of the market will remain a challenge, as nearly every individual and business in the country will be affected by the ongoing financial crisis,” added Mr Hackney. “We are in a good position with regards to forecasted volumes for next year and, like every period of uncertainty, this will bring opportunities for us and the wider sector. We are focusing on our customers, and servicing our order book, to ensure we are in a strong position to react when things change.”
