The early weeks of the year traditionally constitute one of the quieter periods for the UK fencing sector, but many operators are already viewing the prospects for 2003 with some optimism. Indeed, there are reports of an unusually strong start to the new year in terms of fencing timber demand.

The generally upbeat tone adopted by the fencing sector is in stark contrast to feedback from the pallet trade. The new year has begun with fairly reasonable levels of demand for pallet wood but the manufacturing sector remains bedevilled by over-capacity, relatively stagnant demand patterns and almost non-existent margins.

First the good news. A significant proportion of fencing operators contacted this week were expressing satisfaction at the business levels achieved in 2002. Indeed, several suggested that high winds in some parts of the UK during October and November had resulted in a late-season sales fillip. One commented: “November was our second-best month in terms of turnover for the whole of the year, and December was also good. It made what was already a good year into an even better one.”

With the housing market remaining strong for the moment, the outlook for 2003 is generally considered bright,with one operator declaring: “There are no real negatives about the market.” Indeed, with Easter falling in the second half of April, many operators believe a mild February might prompt an early start to the fencing season for people who are unwilling to wait for the Bank Holiday period. “Fencing is becoming increasingly seasonal and it is hard to get a firm forecast of what the season is going to be like so that we can organise stocks and shipments in advance,” commented one supplier. “Everything is very knee-jerk.”

The public is continuing to lean towards more durable and decorative fencing products, thereby providing fencing suppliers with scope to improve their margins. However, the UK market remains “extremely price sensitive” and attempts to pass on rising costs almost inevitably meet with resistance. Noting that freezing conditions in the Baltics were creating pressure for higher prices from Latvia, only a small proportion of domestic sawmillers were reporting any beneficial impact on prices paid for home-grown timber. But one trader noted: “According to the weather forecasts, it could be April before the ice problems end in Latvia and so perhaps the UK mills will benefit in the longer term.”

At the same time, there was little confidence that customers would be prepared to pay more for their fencing products. “We cannot pass on the increase,” said one UK fencing specialist. “We are going into the new year with the same prices as last year and, in some instances, we have had to give discounts.”

Weather-related supply problems from Latvia have created some unexpected quick-turnaround business opportunities for UK mills. However, domestic sawmillers contacted this week were more concerned about the “headache” of falling residue prices. Observing that the price quoted to him for 2003 was 20% below that for 2002, one operator stated: “We are not cutting some sizes just to avoid the sawdust. We are actually buying some of our materials from abroad instead.” Another expert commented: “Round timber prices have been sinking due to the problems with residues and are likely to fall even further.”

In terms of sectoral issues, there is still a measure of disquiet with respect to the Highways Agency Sector Scheme 4, with suggestions that the agency has been accepting material that does not comply with scheme criteria relating to treatment, stress grading, design and testing. Letters of complaint are being directed to the Ministry of Transport, the Cabinet Office and the Public Accounts Department, TTJ was informed this week.

CCA restrictions

Another key issue, of course, are the EU restrictions on the use of CCA in residential applications which, it was announced on January 13, come into force in summer 2004. The decision by major garden products group Forest Garden to switch from CCA to the copper-based wood pressure treatment Osmose Naturewood has added extra impetus to the debate about securing alternatives to CCA, although a number of sources confirmed that a large proportion of end users remain largely unaware of the issue.

Decking dividends

Looking at other areas of the garden timber sector, preliminary assessments by the Timber Decking Association (TDA) have suggested that UK sales exceeded the £100m mark last year for the first time. Some of its members have even reported a relatively busy January in what is traditionally a quiet period of the year.

&#8220Pallet manufacturers are doing something for nothing all the time. Customers are prepared to shop around for their pallets while manufacturers are prepared to cut each other’s throats”

A TDA spokesperson said this week that 2003 would be “a watershed year” for the design and installation of timber decking in the UK. In its bid to “establish a sustainable market” for decking, the association would be promoting to the public the value of using TDA-accredited installers and would also be backing an accredited decking retailer scheme. Scheduled to be launched in March, this latter initiative would offer retailers an accredited training scheme for those selling decking products to the public.

Pallet overcapacity

The UK’s timber pallet sector enjoyed an anticipated seasonal upturn in demand during the fourth quarter in preparation for Christmas, but the new year has begun with a familiar set of problems.

Long-term overcapacity within the industry was blamed this week for the closure of some well-known pallet producers over recent months, including Cotswold & Vale of Toddington, near Cheltenham. Despite reports of fairly reasonable levels of demand in the first half of January, “there are still too many UK manufacturers fighting over the same slice of cake,” ventured one trader this week. Another added: “There have been a lot of warnings about the possibility of pallet industry casualties in the past but now there is real evidence that the overcapacity is starting to bite.”

Closures have failed to prompt any fundamental change within the pallet sector. In general, the response to overcapacity has not been to curtail production, but rather to cut prices in a bid to corner market share. TTJ was told this week: “Some manufacturers have invested heavily in automation and other equipment and their first instinct is to protect this investment.”

Price decreases

One of the compensations for the trade would appear to be that pallet timber prices have been rooted to the floor for some time. Unfortunately, many manufacturers have been passing on any price decreases to the end user in a bid to secure their business, with the result that customers – rather than producers – have been reaping the benefits of low raw material prices. “Pallet manufacturers are doing something for nothing all the time,” said one trader. “Customers are prepared to shop around for their pallets while manufacturers are prepared to cut each others’ throats.”

The UK pallet industry is also having to contend with an unfavourable, long-term demand pattern. Many blue chip timber pallet users have switched to other options, such as bulk bags and bulk tankers.

As with fencing timber, severe winter weather has affected shipments of pallet timber out of Latvia through the Bay of Riga. Shippers have imposed surcharges of between £2-2.50 per m3 in order to cover ice-breaking costs. Smaller vessels have effectively been put out of service because of their inability to keep pace with the ice-breakers. These weather-related problems have led to pressure from the Baltics for price increases.

A contact commented: “It is difficult to guarantee supply of timber out of Latvia at the moment, so domestic suppliers of pallet wood are feeling some benefit. This supply bottleneck could mean some short-term profit-making opportunities for sawmillers approached by people who are desperate for timber.”

On the other hand, he added, the sawn goods customer is generally in a strong position such that the sawmiller has effectively become a “price-taker”. He concluded: “I can’t see anything moving on prices in the longer term.”