Recent statistics from Timber Development UK (TDUK), released in April, indicate a 13% uplift in exports of softwood from the Republic of Ireland to the UK in January this year over January 2022. At face value that could suggest that business is booming for Ireland’s sawmilling sector although, of course, the market is much more nuanced than that.
For example, demand for construction timber, which was described as virtually non-existent at the time of the last Ireland market report (TTJ November/December 2022) remains very sluggish.
“The construction sector is hugely challenged at the moment,” said one major sawmiller. “People are nervous about where interest rates are going and buyers are nervous about house prices. There is also still plenty of available material out of Scandinavia.”
He added that there may be some light at the end of the tunnel, which is that US housing starts have begun to increase and may get to a place where they attract Scandinavian imports again, thus leaving more space for Irish timber to fill UK demand.
Another major sawmiller was uncharacteristically gloomy, however, saying that demand had been flat across all product sectors.
“We were half optimistic in February because there was a bit more activity in January and February because customers had destocked considerably in the last quarter of 2022 and were at such low levels they had to order. Unfortunately that took a massive dip again in March and the demand really hasn’t been there.”
“You would have hoped that new build development in the UK and Ireland would have been more effective at this stage because we need more houses, but I don’t think the governments have got it right in incentivising people to build and with interest rates [so high] people are slow to borrow money.”
And, he said “there is too much timber on the market for the demand that is out there. The Scandinavians are the biggest drivers of pushing [construction timber] prices down and they’ve tried to claw some of that back in the last couple of weeks into Q2, with mixed success. In some cases they got marginal increases and in others they just maintained. But the volumes are still around.”
He went on to say that he was most concerned about the pallet sector, which is a good indicator of how strong or weak the overall economy is.
“Every facet of manufacturing, whether it’s food, pharmaceuticals, construction, you name it, everything is delivered on a pallet and it’s been unbelievably poor.”
He added that year-on-year pallet business was back 25-30% on expected volume, “which is huge”.
Other contacts were more positive – or, perhaps more accurately, less negative – about pallets, however, with one referring to the market as “really steady”. “There is nobody down and out and feeling crap about pallet production, equally there is nobody very excited and in terms of volumes we are doing a bit less than we were – but it’s always a full week.”
The fencing market, which slowed as expected in Q4 has been “okay” in Q1, the contact said, although the Easter surge that everyone anticipates hadn’t really happened because the weather was so poor.
“But we’re not down about it yet because the weather is changing and we are expecting things to pick up a bit. If it was to stay wet for another two months then we’d have a much bigger issue.”
Another, however, said he didn’t anticipate a good fencing season. “I think every garden in the UK and probably Europe has been done up over the last two or three years during Covid,” he said, adding that nowadays if people had to choose between investing in their gardens or going on holiday, they were likely to choose the latter.
A fencing and pallets specialist bucked the Q4 trend somewhat and saw its customers ordering in November/December after destocking in September/October.
“The end of the year was a lot better than we thought it was going to be,” said the contact. “We finished with a bit of stock but only because of where Christmas fell. The only timber we put into stock was five days production – everything else was sold.”
However, Q1 has been “very slow”.
“January and February we got a bit of a lift because of the good weather but March was an horrendous month and that definitely slowed things down. April will be a sluggish month and we are really looking for things to kick off in May. If it doesn’t kick off in May then we’re all in trouble.”
And yet, he added, for all the gloom and doom, timber is still moving and the mill came out of March with very little stock.
“We’ve virtually no stock [in April] but the order book is not great. We’re doing much more spot selling than in the past. Spot selling would have accounted for about 15- 20% of sales and now it’s closer to 40-50%. That means you have to put the right timber on the ground. You need to be flexible, turn sizes around, cancel sizes at the last minute and put something through the mill that you know is going to move within the week.
“Customers think they know the mills have got the stock, which they don’t necessarily, so if they come looking and you don’t have it then you’ve lost that order. It’s a game of cat and mouse and it’s messy and difficult to call.”
He said prices had “taken a hammering” with featheredge board dropping 30-40% from last October and pallet “following suit – probably down 15-20% this year”.
A couple of contacts mentioned that BSW Group’s acquisition of the Scott Group, a leading supplier of timber pallets and bespoke timber packaging solutions, at the end of last year (ttjonline.com December 5, 2022 and TTJ January/February 2023) had had a significant effect on the pallet market.
Put simply, some mills that had counted Scotts as a customer in the past found that was no longer the case from January 1.
“People were panicking and ringing around, offering their pallet wood and prices started falling,” said a contact.
“The purchase of Scotts by BSW will change the market,” said another, unequivocally, adding “the market is softening, for sure”.
Another major sawmiller has taken a bullish approach to the slack demand and has put all its efforts into finding new customers – as well as maintaining its existing ones. Seeing the writing on the wall when the market first dipped last summer it changed its strategy and “went after it”.
“We rolled our sleeves up, got out on the road and took on a lot of new business, particularly in the UK,” said the contact.
“We didn’t drop an hour of production. Our existing customer base stayed loyal to us – they were just ordering less due to demand being less, so we had to spread our wings a bit across new accounts.
“We pulled through [H2, 2022] ok and as a result of that 2023 has been exceptionally strong,” he added. “We came back earlier than planned after Christmas because our order book was very strong and we’ve never looked back. Our stock levels are probably as low as they’ve ever been and are at the sweet spot. We don’t want them to get any lower because we are where we want to be in terms of having good work in progress stock coming through.”
The contact said that the closing of the price gap between imported C24 and homegrown C16 had reduced demand for Irish construction timber but that had given them “the opportunity to look at other products out there” and they had put more production into fencing, for example. And, he pointed out, the gap between C24 and C16 has “fortunately started to widen again”.
“We’re very flexible and no matter what the order book looks like we can change the production schedule,” he said. “A lot of our customers are taking mixed loads – some C16 and some fencing.”
He added that the mill had been working overtime all last year and had started overtime again at the beginning of February. Other mills said they had maintained their standard production schedules, albeit that is “far below capacity” and may include cutting in different ways and shortening log runs. And several noted the importance of maintaining production in order to retain their labour force.
As for what they are cutting, Coillte says that the spike in demand for small logs reported at the end of last year has come to an end and there is now “normal distribution of logs going into sawmills.
“They are back cutting large sawlog in the same proportion as they would always do,” said Coillte. “What they are cutting from it might be slightly different but they are taking it – and screaming for it. Demand is very strong for large sawlog as well as small sawlog – for everything actually.”
Coillte reports that its intake has been at record levels this year, with one week hitting the highest ever at 47,000m3 of sawlog. “Our average year to date has been very strong, maybe around 8,000m3 more per week than last year. However, we’re hearing from our customers that that doesn’t reflect their operational levels but is reflective of their contracted levels on the private side.”
Mills contacted by TTJ certainly didn’t report any difficulties regarding log supply and the felling licence application problems that dogged the sector a couple of years ago have abated. However, there are other problems in forestry.
“We’re in a reasonable position for felling licences and even have a good portion of 2024 licenced,” said Coillte. “However, road licences are a real problem for us and we are basically operating on a just-in-time road system.”
In a nutshell, while the felling licence may have come through and the customer is ready to access the site, there is no road from which to do so, or the road is going in so late that it hasn’t had time to settle.
“It’s costing us a fortune to maintain roads because we are having to use them sooner than we should,” said Coillte.
And a problem remains with some of the felling licences themselves, too. While the objections to them have diminished, many are subject to Department of Agriculture conditions and this is severely hampering access to sites and making it difficult to have an even flow and spread of material.
“We had one licence that had 57 pages of conditions,” said Coillte, while another contact related a tale of a site that couldn’t be harvested due to a badger population on a small part of it despite the fact that a state-led badger cull was going on in an adjacent field.
“There are new environmental challenges all the time and the lack of co-ordination [between state departments] is frustrating,” he said.
Coillte said it is working with its customers and with the Department of Agriculture to try to get some regulatory reform but added that there may be more legislative challenges ahead.
“We’re hearing there is stuff coming from the EU that is a threat in terms of how licences could be perceived going forward,” said the contact. “Things like continuous cover forestry (CCF) for example. If we have to go CCF then we will have a problem and we won’t be able to produce as much. These are just threats and haven’t happened yet but we’ve hired a new director of regulatory affairs to help us get through this mire of new regulation.”
As for the here and now, Coillte’s regular contract events and auctions have proceeded as normal and it is committed to its target volume of 1.65 million m3 this year. It is also carrying around 200,000m3 that didn’t sell from previous years and will offer as much of that as it can, given the situation regarding licence conditions.
By last October log prices had already fallen 25% year-on-year and there were “significant” drops every month since then until March, resulting in a year-on-year decrease in the region of 35-40%.
The price stabilised in March, although with its customers “still not overly optimistic” about the market conditions – and the prospect of strong sawn prices – Coillte says it doesn’t know how long that will continue for. It remains hopeful, however, that log prices have “reached the bottom of a very steep fall”.
The sawmills have a completely different take on log prices, of course, with one describing them as on “an upward trajectory”, which didn’t make sense to him given the current sawn prices and demand.
The wood energy sector has been blamed for distorting log prices and demand for material but that would seem to be a shortterm criticism as it has now “come back to a more sensible and sustainable level” following a difficult winter in terms of managing demand for wood pellets. Prices had got to “a really ridiculous level” for the purchaser but are coming down again now and, of course, there will be less demand in summer.
However, firewood is still competing at very high levels for the lowest grade of material. “How long that will last given the rows over pollution I don’t know but there are going to be a lot of unknowns in the sector,” said a commentator.
Energy costs – “three or four times what they used to be” – have continued their vicelike squeeze on profit margins, as have other costs such as wages – “up 10.6% last year – and insurance – “double what it was, for less cover” – but most are phlegmatic.
“We will do what we can and, like everyone else, make sure we keep the ball rolling and everyone paid,” said one contact. “There’s only so much you can pass on so we’re having to absorb a lot of it – no different to anyone else,” said another.
And even the gloomiest contact admitted that it was easy to get “caught up in the moment”.
“We can’t complain,” he said. “We’ve had a good couple of years and from a longterm perspective we are in very, very good condition.”
