While all of the UK’s pallet manufacturers have been struggling with the twin problems of lacklustre demand and rising costs, contrasting fortunes have again been reported by the domestic fencing sector. Just as before the summer, some are experiencing excellent market conditions while others claim the season has been generally disappointing.

Again, specialisation and diversification appear to be the key to this disparity. Companies focusing on standard products aimed principally at the household market seem to be suffering in comparison to those firms with an added-value, diversified or even niche product focus. For example, fencing sales into the industrial and agricultural sectors have held up well, with suppliers describing their overall summer sales performance as “much better than last year”.

For example, one producer commented: “Our sales of feather-edged boards have not been as good as in previous seasons, but post and rail and factory building-type work have been very good.” Conditions had been so favourable, he added, that price increases of between 5-7% had been obtained over the course of the second and third quarters. Another contact noted: “The round fencing market is strong – if anything, there is a shortage of blank material. Sawn fencing is more difficult, and a lot of panel fencing firms have not had a good year.”

A leading garden products manufacturer said that sales of higher-value items – such as gazebos, large sheds and other structures – had exceeded forecasts and had compensated to some extent for disappointing returns from feather-edged and slat fencing. However, he believed that, over the current quarter, the company had regained some of the lost ground on volume fencing products on the back of discounting by the major sheds. He added that, while sawn timber prices were low and likely to remain so in the immediate future, round timber prices had increased by around 6-7% over the last two quarters.

Housing market

Several reasons have been mooted for the uninspiring demand from the household sector, chief among them the loss of impetus within the housing market and an increasing sense of economic uncertainty. Recent results and comments from the large DIY sheds tend to suggest that the average UK householder has become more reluctant to spend money on their property. It had been hoped that the recent 0.25 percentage point cut in interest rates would kick-start the housing market, but there has been no evidence of this yet.

In general, the domestic fencing season got off to a slow start this year but appeared to pick up for many companies towards the early part of the summer. But as one contact put it: “Sales slowed up a bit quicker and the peaks weren’t as high as we would have expected.”

A number of fencing operators claimed to have maintained price levels despite a reduction in orders over the year to date. However, several expressed concern that prices might come under pressure as a result of some companies selling at lower levels in a bid to move stock.

With timber costs having been relatively static over the summer, growers’ margins have been put under pressure by the impact of, for example, the EU Working Time Directive and the increase in transport costs. “Given all the publicity about rising oil prices, it’s difficult to argue when a haulier asks for price increases,” said one contact.

According to several sources, FSC and similar sustainability criteria are being stipulated to an increasing extent by fencing customers. “In many cases, we are now having to submit our FSC approval pre-contract,” said one fencing specialist, adding that this was “good news” for those companies which had invested significant resources in gaining these approvals in the first place.

As reported previously, the Environmental Noise Barrier Association is linking up with the Highways Agency and the relevant British Standards committee with a view to devising standards for monitoring and testing moisture content in timber noise barriers. According to the latest update, test results have yet to be finalised.

Meanwhile, the proposed overhaul of the BS 1722 fencing standards – which is covering all types of fencing – has suffered a delay. As part of the review process which began in October last year, it had been hoped to commence a public consultation exercise during the latter part of this summer. However, despite the industry meeting the deadline for submissions, the consultation process now appears unlikely to commence before November or even December.

The pallet industry is regarded by many as a reasonably accurate barometer of the fortunes of UK plc. With large areas of the domestic retail and manufacturing sectors suffering widely-reported difficulties at present, demand for pallets has also taken a knock. “We have seen a lot of major customers reducing their requirements in volume terms,” TTJ was told this week. And, despite the end of the summer holiday season, the immediate outlook would appear to be not much brighter: for example, the latest CBI survey revealed that, for the first time in seven years, the number of retailers who were pessimistic about prospects for the fourth quarter outnumbered the optimists.

In terms of demand, the majority of the UK’s pallet manufacturers are understood to have experienced “the slowest July for quite some time”, although several reported an improvement in order files during August. According to a leading producer, this had been “one of the most challenging years” for the pallet industry, thanks in large part to the pressure applied by steel surcharges, rising fuel/energy/haulage costs, and “a slower market place”. He added that pallet producers “have not seen the [demand] peaks we would normally get” among some of the key consuming industries, such as the construction sector.

His company had managed to hold its finished product prices over recent months and was expecting that status quo to be maintained throughout the rest of the year. At the same time, he anticipated fairly consistent pallet timber prices until the end of this year, followed by upward momentum in early 2006.

Prices ease

Pallet timber prices have eased following a build-up of availability and stock in the UK. However, a leading domestic sawmiller also expected prices to firm again by the first quarter of 2006 once the effects of this year’s wind-blow in northern Europe have worked their way out of the market. In the meantime, he reported ever-stronger pressure on margins from, in particular, energy costs, with electricity charges increasing by 37%.

The European Pallet Association (EPAL) indicates that flat pallet production jumped from 15.77 million units in January-May 2004 to 18.06 million units in the first five months of this year – an increase of approaching 15%. EPAL statistics show that production totalled 40.186 million units during 2004.

Meanwhile, a couple of key developments have occurred in connection with the ISPM 15 phytosanitary standard relating to wood packaging. First, China has confirmed that it will accept ISPM 15-compliant wood packaging material without a phytosanitary certificate, as well as wood packaging that abides by the country’s Announcement of October 2002. This stipulated that wood packaging – with the exception of unlanded dunnage and processed wood – must be produced from de-barked wood and either heat treated or fumigated with methyl bromide. The Announcement also demanded that all consignments had to be accompanied by a phytosanitary certificate prior to shipment.

In a further development which is likely to have a more pronounced impact on UK companies, the US has confirmed that only ISPM 15-compliant material will be accepted into the country from September 16. US Customs has issued a statement stressing that wood packaging not subjected to the proper treatment and markings procedures would run the risk of rejection.