For a period prior to the summer, business for the UK fencing industry had been nothing short of “flat out” and “manic”, according to a number of leading sources.

However, activity dropped sharply in June and, despite some improvement in sales since July, there are now signs that the season may be drawing to a close and that consumer spending may have gone off the boil in response to gloomy economic tidings. The pallet sector, meanwhile, continues to be squeezed between the twin pressures of overcapacity and demand that can at best be described as steady.

Despite the ebb and flow of fencing activity over the last two quarters, prices affecting both the fencing and pallet sectors have remained fairly static. A growing trend was reported towards a “negative price premium” of generally £1-2 per tonne for non-

certified timber but, on the opposite side of the equation, there is no evidence of higher prices being offered for certified timber.

UK sawmilling sector

The UK sawmilling sector, meanwhile, reported average but unspectacular activity in the latter part of the summer, followed by a slender upturn in demand over recent weeks from the fencing contracting market on the back of generally good September weather. At the same time, however, some contractors are beginning to apply pressure on domestic sawmillers for price reductions. According to one sawmiller, the Baltics are “dictating the UK price in the fencing sector, and they are around £10 per m3 cheaper at the moment”, although others believe the gap to be less pronounced.

Meanwhile, UK sawmillers are finding themselves under continuing pressure to drop residue prices while some are reported to be having difficulties in moving their sawdust.

Margins cut

Some fencing contractors are rumoured to have cut their margins in a bid to stimulate orders. A supplier observed: “Things seem pretty mixed for the fencing boys – their demand has become somewhat muted and there is evidence of some producers building up their stocks.” Most fencing companies contacted this week reported excellent demand in the months leading up to the summer but a sharp downturn during June and July. June was particularly badly hit by the reduced number of trading days, World Cup fever and a noticeable fall-off in activity in the builders merchant sector.

August and September appear to have brought a return to more normal levels of business, with one major fencing supplier suggesting that both months were “ahead of budget”. Another supplier estimated that, taking all the various ups and downs of 2002 into consideration, volumes were up to 20% higher in the first three-quarters of the year compared with 2001. Several others put the increase in orders at a more conservative 10%.

This improvement appears to have been achieved largely at last year’s prices since many operators are claiming that there has been no scope to put prices any higher this year. “It is still uncertain whether the market will wear any increase for next year,” it was said this week.

Decorative garden products

While purchases of the more traditional fencing panels appear to be holding up, sales figures have been boosted by the continuing consumer trend in favour of added-value garden products such as decorative and upmarket fencing panels, arches and pergolas. Sales of sheds and decking have been particularly strong, with the Timber Decking Association recently dismissing suggestions that the decking boom was over and even pointing to a trend towards ever more complex structures. The organisation recently reiterated its prediction that total commercial and domestic sales might exceed £100m in the UK this year compared with £5m in 1997.

The trend of UK homeowners lavishing more money and attention on their gardens has provided a welcome fillip for suppliers. One observed: “The market is still very competitive even for the fancier items, but these give us far better scope for a margin.” Another added: “People have shown that they are prepared to pay more for a ‘feature’ in their gardens – they see it as putting value on the property.” According to latest reports, some of the major DIY retailers are already expressing bullish sentiment for next year in terms of garden product sales.

On the wider news front, a rising sense of annoyance has been reported among companies supplying environmental noise barriers to the Highways Agency in accordance with Sector Scheme 4, under which timber is required to be stress graded and to have undergone a higher level of treatment. According to several suppliers, a large volume of non-conforming timber has been appearing in Highways Agency work, such that questions are beginning to be asked about the benefits of involvement with Sector Scheme 4. One leading supplier observed: “The industry is getting quite vocal about this because some companies are complying with these requirements at a cost, but are losing business to people who have not made the same investment.”

Pallet sector

The pallet sector, meanwhile, has had its collective mind focused on developments in phytosanitary standards. As reported previously, the Chinese government jumped one step ahead of international efforts by announcing emergency regulations that require all wooden packing materials and pallets to have undergone heat treatment or fumigation with methyl bromide.

The European Union recently dispatched a delegation to the Far East to clarify these measures. However, on the eve of the regulations coming into force on October 1, it was not known whether the Chinese authorities would be prepared to accept non-compliant wooden packaging and pallets which had been shipped prior to this date but which were yet to arrive.

According to a pallet industry expert, China’s unilateral action has prompted “an element of panic” in the UK. Some non-compliant cargoes having been turned away from the docks while domestic heat treatment facilities have been fielding a growing number of ’emergency’ enquiries. On-costs of heat treatment have been heard to be anything between £16-25 per m3, which is roughly equivalent to between 80p and £1.25 per pallet.

A widely-held view is that manufacturers will ultimately have to heat-treat all their pallets. A senior industry figure confirmed this week that a move towards the compulsory heat-treatment of Europallets was “under constant review” and could be initiated within a matter of months.

The phytosanitary issue has emerged during a difficult period for the pallet sector, with continuing production overcapacity creating “cut-throat” competition and claims that some manufacturers are quoting for jobs “at below cost” in a bid to secure increased market share. Pallet manufacturers are being pushed ever more regularly down the line of “fixed price, low margin contracts – even with blue chip customers”.

On-line auctions

UK competitiveness has also been damaged, it was suggested, by the tendency to maintain a wider range of specifications compared with manufacturers on the Continent and by the continuing downward price pressure applied by on-line auctions.

Several manufacturers reported a noticeable improvement in activity recently, but still at “pathetic” prices. Looking to the wider picture, however, general economic uncertainty and the long-term decline of the UK’s industrial base have dampened overall demand. “It’s not that we are losing a lot of customers, it’s just that many of them are buying lower volumes,” a pallet specialist told TTJ. He also acknowledged that many customers had either gone out of business or altered their handling methods.

Several contacts also noted an improved demand for pallet logs. In general, pallet timber prices have remained fairly stable over the last quarter, albeit at low levels. Rumours that logging problems caused by summer forest fires in Latvia might have led to shipping delays have been largely scotched “although some are saying you may have to be more flexible about the material you take”, noted one source.