The surge of business in the run-up to the end of 2013, which saw customers chasing full orders of fencing right up to December 23, continued unabated into the new year and is showing no sign of letting up.
For the last handful of years the Britishgrown timber sector has owed its growing market share more to the import substitution factor than to inherent demand. But as demand now seems to stem from a genuine pick-up in the UK economy and in construction and RMI levels it’s a very welcome change of impetus for the sector.
Now, however, new challenges exist and to some degree the sector is turning its focus away from the search for new markets and towards the issue of its own supply of raw material. Harvesting contractors are working flat out and, while there are no seasonal forest access issues, thanks to the mild weather, the increasing demand from mills is putting pressure on their capacity.
One issue mentioned by a contact was the ongoing felling of Phytophthora-infected larch to comply with Forestry Commission phytosanitary measures. It’s not just that harvesting resources are being diverted from Sitka spruce stands but also the impact it has on mills’ ability to process its log intake that is causing concern.
"Processing larch is more demanding, you can’t run it as fast as Sitka," said an industry spokesperson.
"It’s bendy and less straight than Sitka," said a sawmiller. "On a typical spruce site 60% would be millable and 40% would go to pulp or biomass but on a typical larch site you could almost turn those figures around. So although the harvesting resource is the same, the FC’s policy to get larch through is reducing the amount of millable wood coming into the pot." Irish mills’ log buying activities in the west of Scotland are also adding to the pressure. "When they first came over they were buying logs we didn’t want but the dynamics have changed now," said a sawmiller.
Demand impacts log prices
The main gripe though, is the effect the demand for roundwood is having on log prices. "While mills are able to strengthen the prices they are getting for their products they are having to pass it back to their log suppliers because there is quite a scrabble for raw material," said a Confor spokesperson.
"We had a storming production week recently and did around 700m³ more than we’d budgeted on," said a major sawmiller. "It doesn’t sound a lot but that’s 1,400 tonnes of logs that we had to find and that very quickly puts pressure on the local log supply."
It’s been pretty tough [securing roundwood]," said a fencing and pallet sawmilling specialist. "Twice this year we’ve said that if log availability didn’t ease up a bit we’d have to go back to a single shift because we’re going through logs faster than we’re getting them in."
And while recent success at a log auction had averted this situation, the log price shot up by nearly 20%.
"People say that £1 of roundwood is equivalent to £2 of sawn timber so theoretically we should put our prices up by £40/m³. You can’t do that in the real world."
Having said that, the contact is pleased with the 8-10% increase his mill had secured across its fencing range and the 10-15% that had gone on its pallet timber prices between Q4 and Q1.
Other mills have been more modest in their increases, with one citing around 6% on construction timber and "closer to 7%" on pallet timber at the tail end of last year. "We got those price increases with no trouble at all and I think it’s inevitable we’ll get further increases once we get to the end of Q1," he added.
Demand is so strong that British mills are now at capacity and there is very little excess or unaccounted for production, leading several contacts to predict that the price of sawn timber will become secondary and the buying process will be all about availability.
"We’re sold out," said one major sawmiller. "Lead times are still reasonable because we manage the order book. We’re inundated with requests for supply from people we’ve never dealt with before but I’m not interested in that kind of shuffling of market share. I’m into building relationships with valued customers and these are the people who get the timber." "We’ll continue to supply our regular customers with their usual orders and where we have any extra capacity we’ll offer it to them," agreed another contact. "What we can’t do is promise any extra capacity."
Demand for construction timber is steady, while pallet timber business is increasing as the recovering economy sees more goods being transported around and outside the country.
Storms boost fencing business
However, it’s fencing demand that is at extraordinary levels, with pre-Christmas demand being surpassed thanks in no small part to three stormy periods on the bounce. "Fencing manufacturers may carry enough stock to cover them in the event of one gale but when you have three back to back the stock gets flushed through very quickly," said a contact.
"We’ve seen people almost panic buying," said another. "Featheredge is completely sold out and we could probably put another three machines in [to satisfy demand]."
"We’ve got the lowest stock of sawn product since the boom of 2007," said a fencing specialist. "We’re back to the scenario with some products where they’re going in as a log one end, coming out as sawn timber the other end 10 minutes later and another 10 minutes after that they’re going on a lorry."
"We hit the end of December with zero fencing stocks and it’s been an absolute flyer since coming back in January," agreed another contact. However, he added that business had calmed down a little since then and that while there were some very specific shortages – such as 1.65m featheredge – there was no widespread shortage of fencing material.
The main surge in demand is probably yet to come as while some fencing contractors have been able to work in the less floodaffected areas, the wet weather has prevented the bulk of the repair and replacement business that has built up following the winter storms that afflicted so much of the country.
The fact that fencing sales are so strong despite relatively little work being carried out on the ground is an indication of the growing confidence of the merchant sector, said contacts. "For a number of years merchants and customers further down the chain haven’t had the confidence to buy in and plan ahead but that’s changed," said an industry spokesperson. "There isn’t just increased activity but also a desire to put stocks down and to go out and pursue markets." And, he added, the fact that the Britishgrown timber sector had gained market share and a lot of new contacts over recent years meant it was in a strong position to satisfy a good proportion of that demand.
What they can’t satisfy will be balanced by imports, which have been steadily increasing over recent months.
Relieving some pressure
Far from expressing a desire to stave off imports, one sawmilling contact said the extra volumes were actually providing some respite from the pressure on domestic capacity. Others said that the market would find its natural balance but maintained that the home-grown sector had little to fear.
"Importers will bring material in and pay a fairly rich price for it," said one sawmiller. "There will be implications for the value of home-grown timber because the price differential between it and imports is critical. I think in particular that Swedish mills will have to increase their selling prices." And, of course, British timber producers will then be able to follow suit.
Looking ahead, the British-grown timber sector is optimistic that the upturn in business is sustainable and confident that sawn timber prices will rise.
"We’re very confident that this is the recovery year and we don’t see an end to demand," said one sawmiller. "However, we have to be very careful that we don’t kill the goose that laid the golden egg. If we have a price increase we have to make sure the customer can pass it on."
And, with demand currently outstripping supply, there are warnings heading back upstream, too.
"There has to be some sense in the log market or we’ll have no option but to cap capacity at a level we’re comfortable with. My message to the supply chain is don’t push too far and bite the hand that feeds you."
