Anxious not to be caught on the hop when market conditions change, the different sectors in Ireland’s timber industry are taking stock and trying to position themselves for continued success.

In the last 18 months the country’s sawmills have invested I£35m in new and replacement technology to increase capacity.

The volume of timber processed by the mills last year was approximately 2 million m³, according to the Irish Timber Council (ITC). Of that figure, around 1.7 million m³ was provided by state forestry organisation Coillte, with 200,000m³ from the Northern Ireland Forest Service and a further 100,000m³ from Ireland’s private forestry sector.

That the mills have managed to cope with such a large volume of timber has generated increased confidence in the wider industry that they will be capable of absorbing the predicted year-on-year increases in supply. Total forest production is expected to increase by up to 400,000m³ over the next two years and continue rising for another four or five years.

Investment confidence

‘There was a genuine fear, certainly from Coillte, that the mills hadn’t the capability of processing all the timber,’ said a spokesperson. ‘But the investment is coming through.’

Also, clearly concerned about the future, the government has been spurred into setting up a body called the Timber Industry Development Group (TIDG) to look at how Ireland’s growing timber resource should be handled over the medium term. It will also cover areas such as the logistics of moving timber – both in forests and around the island to mill – and price issues.

‘Various options are being looked at by the TIDG and proposals and changes will be made,’ said a spokesperson for the Irish Timber Trade Association (ITTA). ‘We want to see something there that will work – and something that will provide the services that we need, as well as services sawmillers need – at a reasonable cost.’

Chaired by government representative Liam McElligott, a former panel industry man and current chairman of Irish development firm Shannon Developments, the TIDG is unique in that it has engendered a spirit of real co-operation between the normally disparate interests at play in Ireland’s timber market, including Coillte, sawmills and board mills.

Building co-operation

‘In the European arena we are probably unique in the sense that we are buying about 90% of our product from the one supplier and that will always create friction, there is no point in saying otherwise,’ a contributor explained.

‘But this is the first time the main players have all sat down together and looked at what they can do for this industry and how to take it forward. In the past there would have been a certain amount of positioning between the sectors, so this latest approach is going to be very important.’

The next crucial question will be how to go about marketing all the extra timber. Some in the industry have criticised sawmills for not exporting greater quantities of wood, which could help absorb the increases. But the mills are stoutly defended by one contact: ‘There is a myth forming,’ he said. ‘There was a lot of extra timber put on the market last year and the mills took all of it. But there were also opportunities for a massive increase in the amount of wood mills were able to sell on the domestic market. Probably 85-90% of it was sold here, so the mills have no need to increase their exports,’ he contends.

Despite this, there remains speculation that some mills may be cautious about establishing or increasing their export activities. Over the next few months, the TIDG will consider key indicators such as supply and demand and try to determine precisely what scenario the timber industry can expect to face. It may also have to take into account factors such as the reluctance of some sawmills to develop their exports and suggest ways of involving them in an over-arching strategy.

‘The Group will work out what sort of volumes of timber we need to get off the island – by which I mean, basically, into the UK,’ said a contact. ‘It will also look at where we might need to cut costs. There are a few in the industry that believe Coillte has the potential to cut costs, for example, so that raw materials are more competitively priced.’

Mills will have to be even more cost effective in tomorrow’s market and, in recognition of this fact, a number have set up individual ‘benchmark’ programmes from which to plan ahead. Coillte, generating about 80% of its turnover through log sales, has embarked upon a similar quest and established its own internal study. This kind of information will help in the deliberations of the TIDG which is expected to report its conclusions sometime in July.

TQBI future uncertain

The ITTA says another issue of concern in the industry at the moment is the future of the Timber Quality Bureau of Ireland (TQBI), the regulatory body, equivalent to TRADA, that licenses timber graders and controls the quality of truss rafter manufacture, as well as providing technical back-up for the trade.

The TQBI has been operating under the umbrella of Enterprise Ireland but ‘certain decisions’ taken by the government mean that situation will have to change: ‘The TQBI has got to come out of Enterprise Ireland and the industry is now examining its navel to see what the structure might be for this organisation, in order for it to continue to discharge the service it has done,’ said a spokesperson. ‘Everybody has an interest in seeing that the quality controls are in place and that the standards are being maintained.’

While much of the timber industry is looking ahead, things on the ground remain buoyant, with merchants reporting generally good demand for wood, particularly for construction: ‘Construction timber, sheet materials, doors and windows are all going fairly well,’ said a supplier.

However, while there is still ‘a good deal’ of building going on in Ireland, another contact noted a further slight reduction in the volume of business from domestic house builders since the last report: ‘[House] building activity has definitely slowed down a little but it’s still not too bad.’ He blames overpricing in the housing market for pushing down consumer demand: ‘A lot of people are going to England to buy property now, because they think the market there is more stable.’

Weathering the storms

Construction activity has also been marred by bad weather; along with the UK, there have been long periods of very heavy rain and high wind in Ireland over the last couple of months, making on-site conditions difficult.

‘The weather has been bad but I have seen it a lot worse,’ said another contributor, adding: ‘The kind of conditions that were around 20 or 30 years ago, we wouldn’t survive at all now.’

Prices on many timber products could be better, according to one merchant. ‘Prices seem to be holding their own but not really progressing much,’ he said.

Another was more positive on the price front: if prices remain at their current level, he said, ‘there’ll be no problem at all’.

A number of industry insiders remain concerned about the impact of the government commissioned Bacon Report, which was published last year. The report, commissioned to find ways of taking heat out of the property market by making it less attractive to speculators, is widely criticised as a ‘blunt weapon’ that is hindering investment.

‘We are at a dangerous point really,’ explained a worried commentator. ‘A lot of people are at the stage where they are about to launch a lot of houses; there are projects all over the place due to be completed over the next two to three months. It is going to be very interesting, when that happens, to see which way the market goes.’

The report, which recommended an increase in stamp duty to 9%, could quickly result in a surplus of houses on the market, with inevitable consequences on prices, it is believed.

As well as the initial high level of stamp duty, property investors also have to come up with 2% of the value of the property for each of the following three years and there is ‘no tax relief on the money’, all of which has served to remove the incentive to invest altogether for many people. ‘With the investors knocked out of the equation, we could be in big trouble,’ the contact concludes.

Budget effects

There is a cautionary note from another timber supplier regarding the potential effects on the econ-omy of measures outlined in last year’s Irish Budget, which are now beginning to feed through.

He too singles out the Bacon Report for criticism, as well as continued increases in state aid for local housing corporation and council schemes – another key factor contributing to downward pressure on house prices and construction activity.

‘I have to live off these people and all I hope is that they increase their production of houses, not reduce it,’ he said. ‘For five years we’ve been in a great boom. Now we could see some changes after what the government has done.’

Government action has already had an undeniable effect on the property market, helping to boost investment in foreign property to record levels. Around I£10bn of speculators’ cash flowed into the US market alone last year. ‘They are driving all the investors out of this country, now I understand they are going to England and America,’ complained the contact, ‘so you people are getting the benefit of our problems here.’

The ITC’s annual general meeting takes place on March 23, at which the work of the TIDG will be discussed, along with other industry developments.