The UK is witnessing what one leading industry body has described as its “first significant increase in timber packaging and pallet prices for more than 10 years” as a result of increased raw material costs and higher demand for timber from a number of large consuming sectors, including the buoyant construction sector.
Tangible support for this view came in the December 2003 Reports on Manufacturing put together by the Chartered Institute of Purchasing and Supply, which specifically identified wooden pallets as an item highlighted by buyers as having increased in price for the fourth month in succession. A leading UK pallet manufacturer acknowledged: “We are all seeking price increases and some people are talking about 10%.”
Higher prices have been precipitated to a certain degree by adverse weather and a shortage of softwood logs out of the Baltic states, although there appears to have been no widescale repeat of the severe ice-related problems which badly disrupted shipments from the region last winter. As one contact stated this week: “You may as well forget about demanding softwood from Latvia unless you want to pay a hefty premium. Supply of pallet wood is very difficult and customers are having to accept hardwood unless they are prepared to pay the huge prices for softwood.”
Rise resistance
The larger pallet manufacturers are said to have mounted “terrific resistance” to these higher raw material prices. Demand for their own product was described this week as “reasonably good” but the market continues to be highly competitive.
The precarious nature of the business was exemplified in January when Hammond Pallets Ltd of Widnes went into receivership. The assets have subsequently been bought by the Fife-based Scott Timber Group. The company has stated that local staff would be retained and that the Widnes operation would represent “an important part of our future expansion in the area”.
Meanwhile, a key preoccupation for wood packaging specialists around the world remains the introduction of ISPM 15 – the International Standard for Phytosanitary Measures for wood packaging materials. Following a meeting in late January, the Timber Packaging and Pallet Confederation (TIMCON) has posted a list of questions and answers on its website which is designed to update interested parties on the adoption of ISPM 15. It is pointed out, for example, that ISPM 15 stipulates either heat treatment or fumigation as a treatment process proven to kill most quarantine forestry pests, and that there is going to be a substantial increase in demand for heat-treated materials as more countries adopt the standard.
According to TIMCON, the target date for full implementation of ISPM 15 in the EUropean Union remains July 1 this year, although “it is widely thought that some EU states will fail to be fully prepared by this date and, as such, some slippage in the timescale is likely”.
US implementation
The US, meanwhile, had initially targeted implementation by the first quarter of 2004, but regulations will now be published in May with a view to achieving full implementation 6-12 months later. As of January 2 this year, the US authorities began applying more stringent import controls on wood packaging that was found not to be ISPM 15 compliant. Non-compliant wood packaging found to pose no plant health risk will be allowed to enter the country, explains TIMCON, although the importer will be served with an advisory correction notice. The organisation points to evidence that cargoes containing wood packaging that fails to meet ISPM 15 “may be subject to import delay”, and that treatment, or even return of the cargo in question, could occur should it be found to pose a plant health risk.
TIMCON strongly recommends the use of ISPM 15 compliant wood packaging for exporters to both the US and Canada.
According to leading industry figures, the “constantly changing” situation surrounding the implementation of phytosanitary measures was still giving rise to confusion. At the same time, however, there was a growing acceptance among wood packaging specialists of the importance of this issue to their businesses. One expert suggested: “The standard is good for everyone – it is there to protect your own wood stock. [Wood packaging] companies need to accept that this is happening and get it done properly.”
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“Log prices have gone up quite a bit; post and rail prices have probably gone up by 10% since the end of last season, so most buyers are expecting to pay higher prices” |
Several contacts pointed that demand for heat-treated pallet timber was already increasing and there was considerable investment in kilns and chambers to meet anticipated demand. There was even a prediction this week, based on feedback from a number of meetings, that all Europallets would have to be heat treated “within the next 12-18 months”.
Moving on to the fencing sector, demand in the UK is reportedly showing signs of improvement following a traditionally slow turn of the year. Several producers expressed surprise at the briskness of demand from the domestic fencing sector, especially since interest rates have been put up in a bid to restrain consumer spending. One said: “We have held our prices for the moment but March should see some increases. I would think our prices will go up by around 6% to match the increase in our costs.”
Industrial enquiries have been encouraging for the first quarter of 2004, it was also suggested to TTJ this week.
Raw material costs
Fencing manufacturers appear resigned to having to pay more for their raw material, with UK sawmillers looking to push up prices in line with the increases on Baltic timber. One Baltic specialist confirmed: “Log prices have gone up quite a bit – post and rail prices have probably gone up by 10% since the end of last season. So most buyers are expecting to pay higher prices.”
Suppliers of fencing timber suggested some of their customers were left with high stocks towards the end of 2003 and have only just begun to re-order, although “insatiable demand” was reported for fencing blanks during the early weeks of 2004.
A UK sawmiller suggested that demand had been fairly flat at the start of the year but that the high prices coming out of the Baltics were expected to have a major effect for UK operators. He observed: “Once sales start to come in faster over the next few weeks, we will be looking at putting up prices by possibly 5%.” He added, however, that most of this increase would find its way back to the growers to induce more of them – particularly those in the private sector – to part with their resource. By contrast, other contacts believed that private growers had recently “rushed quite a bit of wood out into the market”.
According to a major retailer, fencing and shed prices have increased by around 5% to take account of higher raw material costs, although he bemoaned the fact that many of his company’s products had become marginal in profit terms, including overlap fence panels in general. Competitively-priced decorative products – most notably log roll, planters and “some of the more architectural panels” – were being imported in significant volumes from Poland and this was placing further pressure on margins, he added.
He anticipated further increases in timber prices but insisted these would have to be passed on to customers in the current environment. “It is not easy but it has to be done,” he said.
Decking growth
As for decking, the Timber Decking Association (TDA) acknowledged a lull in business over the Christmas and new year period but said this had since been replaced by a strong upturn in business. “For many operators, it has been like a light bulb being switched on,” a spokesperson commented. “We are forecasting double-digit market growth in 2004 if the UK economy stays on track.” According to TDA figures, the total UK decking market grew by approximately 10% last year to around £112m, although some producers reported turnover increases of up to 40%.
