What a difference six months makes. Conversations with timber suppliers and processors back in mid-April for TTJ’s last Ireland market report (TTJ May/June 2022) revealed an industry concerned by rising energy and fuel costs but still buoyed by record breaking production and sales during the Covid years and a strong start to 2022.
Flip over a few pages of the calendar to early November, however, and while the concerns over energy and fuel costs are still there – and magnified – demand has dropped right back by “up to 30% across the board” and production is being tailored to meet it.
Construction timber has been the hardest hit, with demand dropping very quickly in Ireland in around April/the start of spring. “It was a sudden dip in Ireland, whereas the same didn’t really happen in the UK until later in the year – maybe July,” said one of Ireland’s major sawmillers.
Another added that demand for construction wood “hardly exists at all” and is “very challenging” and laid part of the blame for that on “the Scandinavians, who are dumping C24 into the UK, with prices a long, long way down”.
Fencing has also taken a dip, dropping off significantly in May/early June and not really recovering since.
Fencing doesn’t seem to be ringing too many alarm bells at the moment, however.
“We had a great start to the season because of the storms in the UK, which made us very busy for a couple of months,” said a contact. “Then when Covid restrictions were relaxed people were determined to travel this summer and I think there was less demand for fencing as a consequence of that.
“Square fencing at this time of year slows anyway,” he added. “It’s not lively but it’s adequate and we expect it to be sort of ok in the spring. And round posts are going along fine.”
A fencing and pallets sawmiller agreed that the storms had effectively “papered over the cracks in the market that was beginning to show signs of slowing down”.
He said the fencing season had been “normal”, although without the anticipated kick around spring and again in autumn.
“August was a slow month and then you would expect a little kick in September/ October and that didn’t come,” he said.
When it comes to pallets and packaging, sawmillers are reporting very different scenarios. For one contact, demand for pallet wood has “held up remarkably well” and while production of other products has been pulled back, pallet wood output is still “going really well”, although he anticipates it slowing in the next two or three months.
Another said “pallet wood is going along just fine” and that the mill is “probably producing a little bit more than we would have in the past”.
However, another major sawmiller has had the polar opposite experience.
“As a rule, packaging and pallets tends not to be as impacted by markets as other products – if one market is slow there is generally a pick up somewhere else,” he said. “But this year it seems to be quiet in every sector, which is quite alarming. And when you hear of pallet makers taking production out, that is a big concern for the economy. Everyone is tightening their belts.”
He added that, in his view, packaging demand was “back lower than it was pre-pandemic. “We’ve never had major issues before. Prices would go up and down but now it’s a volume issue as well. It’s more severe than I remember and I’ve been in this business a long time.
“Usually the amount of stock moving around [on pallets] coming up to Christmas is frightening, but it just doesn’t seem to be happening this year.”
The expected impact of the war in Ukraine and subsequent sanctions on Russia and Belarus on demand and sawn timber availability has not been marked. The impact it has had on energy costs is another matter, of course.
“At the moment we haven’t seen any bounce from Russia or Ukraine not being involved in imports into the UK,” said a contact.
“The impact is negligible,” said another. “It would have created a shortage if there was demand but the general recessionary environment means it’s not being noticed.”
“I was totally wrong,” admitted another. “The expectation was that with Russia and Belarus being out of the market it could put a pinch on the supply chain of pallet and packaging towards the latter part of the year. But, seemingly, a lot of people ordered in case this material didn’t arrive and they ended up duplicating stock because it did eventually turn up.”
One possible kink in the system mentioned by a contact is that Ukrainian timber, which used to be shipped out across the Black Sea towards Asian destinations is now being diverted by road into mainland Europe. And there is some unease over whether this timber should be badged as certified, since both the PEFC and FSC stipulate that war zone timber cannot be bought or sold as such.
“It’s a tricky one and not one I’m going to judge one way or the other,” said a contact.
In terms of production levels, one of the 50,000m3/year output mills TTJ contacted said it was processing the same volume – “no more, no less”. He said there have been rumours flying around that some of the larger mills are on short weeks but that was not confirmed and, certainly all the mills TTJ spoke to in early November were working pretty normal hours.
One commentator said that rather than reducing hours the mills were running products that slow their overall production and that they were changing their product ranges to meet the demands of the market right now – “some of them might be producing things they wouldn’t ordinarily do, so they can keep running,” they said.
Coillte noted that it had seen a shift in demand from large sawlog to small sawlog, indicating sawmills can sell products from the latter more easily than they can from the former. In response, Coillte has shifted its own production to focus on trees that produce more small sawlog.
“It’s not something we can do indefinitely but we are trying to match market demand at the moment,” said a spokesperson.
“We’re not running any overtime at the moment but we are still working 40 hours a week,” said one sawmiller. “That probably means we have a little bit too much inventory and if I had 20:20 vision I would have pulled overtime back a couple of months earlier than we did.”
Another contact said his mill had cut back significantly on volume but that it didn’t want to go too far and risk losing its hard-earned skilled labour force.
“The single biggest challenge for any manufacturing industry in the UK and Ireland at the moment is getting and maintaining good labour,” he said. “We are probably working inefficiently at the moment [by not reducing production too much] because we’re doing our best to hang onto staff for as long as we can.”
Even with reduced production, stock levels are rising “week-on-week”.
“The whole industry has to reduce volume and most people have at this stage,” said a contact. “I don’t know how much more the home-grown mills can take out and I don’t think they are the problem because, in the scheme of things, the overall volumes are small. It has to come from the imported side – that’s where the problem primarily is.”
However, another said that although stocks were building more than he would like, he wasn’t losing sleep over it. And yet another, from a smaller mill, said his stocks were actually low and “very manageable”.
“As a result, our lead times for certain items could be as much as two or three weeks but there are other items you could get tomorrow,” he said. “At the moment it’s all about utilising the log to fit what you think the order is going to be and you can’t look past the next log run that you are cutting.”
And he mentioned the new dynamic that mills are having to factor in, which is the rising cost of electricity. The dilemma is that while cutting at a time of falling prices is not usually an attractive option, it might actually be more cost-effective to do it now rather than later when prices have risen still further.
“Most mills have seen their electricity costs quadruple,” he said.
One situation that has improved – albeit helped in no small way by the falling demand for sawn timber – is log availability. The backlog of felling licence applications that dogged the industry for so long seems to be almost fully resolved.
Coillte reports that 97% of its felling licences for 2023 are approved – although it added that the road licence situation had not changed and it was getting “less than a handful a week”. The percentage of road licences it has for 2023 is “very low – probably 20-25%”.
“It doesn’t stop us operating because it only impacts about 25% of our programme and most of our customers have enough contracts that they are able to draw down on and move stuff around if the roads aren’t working,” said the spokesperson. “But it’s a big problem and it does make it very difficult for people who buy standing sales from us.”
Coillte’s programme of quarterly auctions proceeded as scheduled this year, as did its annual contract event – albeit that was delayed. It hit its annual target offering of 1.65 million m3, so although customers won’t necessarily draw down all of it, it will be there to take “whenever they want”.
The target for 2023 is the same – 1.65 million m3 – although the actual number is likely to be in excess of that because there is some unsold volume from this year and from 2021 that can also be offered.
“From an offer perspective we are pretty much back to normal and 2023 will be the first year [since Covid] when we are actually able to plan our programme,” said the spokesperson. “We know what we have for next year, albeit we might be hampered by the road side of it, but for the first time in a long time we will be able to streamline how we offer material.”
As mentioned, not all the timber offered at auction was sold – in fact a number of TTJ’s contacts said they didn’t think anything had been sold at the last two or three auctions. This they put down to the high cost of the logs in relation to the price they could get for sawn timber, and to reduced demand.
Coillte said its log prices have fallen by around 25% on this time last year but acknowledged that its customers have experienced a more rapid drop than that for their sawn prices.
“End market prices are falling weekly and obviously costs are going in the opposite direction, which is squeezing their margins, so they are suffering,” said the spokesperson. “We price a month in arrears, so we are about a month behind where their prices are right now and I would expect that we would have some more significant drops before year end. We are certainly looking at a very grim year next year all around unless something changes in the market.”
The hope is that the oversupply in the UK will “wash itself out” in the first and/or second quarter and that demand might pick back up, but “there are so many global factors at play that it is really hard to predict”.
The one positive on sawn prices – and you have to look very hard for it – is that they are “quite high in relative terms compared to what they were pre-Covid” and, in fact, if costs had stayed down the industry would be “managing fine”. And, on the subject of rising costs, the latest hit to the sector has been insurance, with premiums having “tripled, in most cases” – although an explanation for the hike has not been forthcoming from the insurers.
One contact said there was a view in the industry that the sawn prices had gone too high during the pandemic period and that most yearned for them to settle down at a sustainable level. “When there is extreme price inflation the fall can be more severe,” he said. “People panic and hold off buying because nobody wants to build stocks that will devalue in the yard.”
“Prices are down across the board and I don’t see them rising,” said a major sawmiller. “I see them being pretty stable until the spring and 2023 will probably have its pricing challenges.”
Construction timber prices are back £100/m3, driven – as mentioned earlier – by imports from Scandinavia.
“The Scandinavians are certainly the aggressors at the moment,” said a major sawmiller. “I have seen prices as low as £235/m3 for Scandinavian C24, which would put it at the same level as home-grown C16.”
Carcassing prices have “taken an unmerciful hammering”, agreed another contact, adding that fencing has come down substantially from the heady heights of £360- 370/m3 to below £300/m3.
“At its height, some guys were selling featheredge at £380/m3 and now it’s £280/m3,” he said.
One product that is doing remarkably well, however, is wood for energy, for which there is “a whole heap of demand”.
The impact of sanctions on Russia, which is a huge provider of wood pellets, exporting 85% of its production, has resulted in “amazing demand” and high prices.
“The sanctions have created a shortage and that in itself would be enough to drive the market upwards but, on top of that, alternative fuels being so expensive has made the conversion to the likes of wood pellets more attractive,” said one producer. “Anyone who has dual ability has moved over to wood pellets, which has created more demand and there is now a significant shortage of pellets.
“It has its own challenges because we’re up against production capacity restraints so we just don’t have enough to service all the customers. I’ve never known the market as strong as it is now.”
He added that, even if the war in Ukraine ended, he couldn’t see a path back to the mainstream global markets for Russia. “They won’t be forgiven and allowed to carry on as normal,” he said. “That’s not the way it’s going to work.”
Having another string to the timber processing bow is particularly welcome, of course, but for those sawmills who don’t have the capability of producing wood pellets at that volume – if at all – it’s another reason to point the finger at the giant forest product groups in Scandinavia and Europe that include wood biofuels in their portfolios.
“The energy market is playing a big part in European prices at the moment,” said a contact. “The pellet prices are three or four times what they were 12 months ago and that gives the producers capital and money in the bank. Sawn timber is a by-product to energy at the moment, which is a worry because a lot of home-grown mills don’t have the capability to build up a buffer and supplement the log prices.”
Another contact added that very small roundwood is under a lot of pressure because “people want to buy it to burn in their homes – and then there is the fact that there is probably not much general harvesting going on. That is going to be interesting over the next few months.”
While there are obvious challenges from every side, the sector is its usual resilient self.
“I do believe it will come out the other side of it,” said a commentator. “It will be poor for a while and, yes, it is pretty bleak, but it will turn around and we’ll survive until that happens.”
“My advice would be to batten down the hatches but don’t be afraid,” said another. “It’s not going to be a boom time but, equally, we’re a long, long way from 2008.”
