Summary
¦ Pallet timber costs have risen 35-40% since March.
¦ Pallet demand has improved.
Whether you talk to fencing or pallet manufacturers, raw material costs continue to dominate their thinking.
TIMCON said last week that in the second quarter, the price of pallet timber from the UK/Ireland and the Baltics increased in the Pöyry Index by the highest percentage since the index began in 2001. As a result, TIMCON’s pallet and packaging manufacturer members are being forced to increase product prices.
The June 2010 Purchasing Managers’ Index published by CIPS also highlighted sustained price increases in significant areas, including pallet timber, which rose for the seventh consecutive month; and nails which has risen for three months in a row. Pallet prices increased for the fourth consecutive month.
“These rises, combined with strong demand from UK sawmills, pulp and biomass, make this an extremely challenging time for our industry,” it said.
One large pallet manufacturer told TTJ that the Pöyry index was up 35-40% since March. With timber and nail costs representing more than 75% of turnover for pallet manufacturers, that’s a big issue. “Going into the third quarter I see much higher prices and manufacturers have to pass it on,” he added.
Customer resistance
He admitted that customers’ patience is being sorely tested. “They’ve had a succession of increases and they are really fed-up.” Some big clients are putting up resistance, he added.
Against this background, the contact said pallet and packaging volumes were down 30-40% compared to 2007, but he’s hoping for some stability going into the third quarter.
Another large pallet manufacturer said raw material prices from home-grown sawmills had increased by 40% this year. “It’s certainly unprecedented in my time in the industry, certainly in such a short space of time. And demand is still only lukewarm at best, but improving.”
He also noted competition from the pulp sector for supplies.
“In the second quarter we were able to pass on these price movements fairly successfully. Going into the third quarter with further increases of similar magnitude, we’re looking at passing on costs of 10-15%.”
This, he said, was very unappealing to them, particularly in an uncertain economic environment. ”There is a lot of nervousness among our customers in general about their own prospects.”
For customers, it’s not just pallet prices going up, it’s all packaging, including corrugated products, paper and shrink-wrapping.
In this environment, there are reports of some price under-cutting where several pallet suppliers share customers, with some companies apparently telling customers there are no timber price increases.
Improved demand
On the bright side, the contact said demand had improved this year, particularly for building products as a result of increased construction activity.
The World Cup was one area that did not create a slump in activity – largely due to England’s early departure.
Raw material supply volumes are said to be manageable, but some smaller manufacturers are finding it difficult to get supply.
Other issues include increased costs of an ISPM 15 extension in Europe and some customers in the pharmaceutical/food product sectors taking issue with blue stain on pallets.
There is concern in the UK pallet sector about growing business in the US for plastic pallets, with much anti-wood propaganda being disseminated, including on a website called Pallet Truth. Although the UK has not seen the level of product substitution as the US, manufacturers say the threat is serious.
