This year has provided the perfect justification for the British to obsess about the fickle weather. In the early months of 2006, fencing manufacturers were bemoaning the fact that a prolonged period of cold conditions was preventing homeowners from investing time and money in their gardens. Now the complaint is that a sustained period of extremely hot temperatures has played its part in reducing garden activity and therefore related expenditure.
After a slow start to the year, suppliers to the domestic fencing sector were hoping that warmer weather and the Easter break would coincide to kick-start their season but, in the event, order levels failed to gather any real momentum until mid-May. To make matters worse, the recent heatwave appears to have slowed activity because, when temperatures are so high, the average Brit would prefer to be using the garden to sunbathe.
Meanwhile, the preoccupation for UK pallet manufacturers has been raw material supply. The main timber supply regions of Europe are “flat out busy” in their attempts to satisfy market demand but are struggling to contend with log shortages in some instances. According to one expert, the cheap logs available in northern Europe following last year’s windblow have worked their way through the system; at the same time, many mills prefer to cut for higher-value applications rather than pallets.
With other countries reportedly busy, UK buyers are effectively being forced to pay the price for their sawn pallet timber or risk missing out. Sawn pallet timber prices are thought to have risen by 10-12% since May and most experts are anticipating further strong price progression over the coming months.
A leading UK supplier argued that these increases were more than justified given that pallet wood had been a low-priced material for some time and that producers were facing ever-rising costs for energy and transport. His own company’s fixed costs had jumped between £3-4/m3 between May 2005 and the same month this year.
Another contact agreed that many UK buyers “have only recently woken up to the fact that they have got to pay more for their timber. I have had quite a few fair-weather contacts coming to me looking for material”.
Pallet wood price increases
Meanwhile, the head of a major pallet manufacturing operation said that UK pallet wood buyers might be paying a further 10-12% before the end of the year. “If the situation doesn’t improve, the increases will have to be reflected in our sales prices,” he said. Introducing price increases to customers experiencing cost pressures of their own was “a slow process”, he said. Several pallet makers said they were limiting finished product price increases in order to shield their customer base as much as possible. “Any increases we are putting on are only to keep pace with the rising costs of raw material,” said one.
In the UK, pallet demand was described as between “steady” and “brisk”, with some contacts indicating that a number of customers were looking to secure larger volumes of timber than normal at this time of year because of concern over the potential for even more serious supply difficulties going forward.
In contrast to sawn timber, prices for round pallet wood have remained virtually unchanged throughout 2006. A shortage of logs in certain parts of northern Europe has not been replicated in the UK.
In latest news regarding the ISPM 15 phytosanitary standard for wood packaging, efforts to stamp out fraudulent marking have continued. An announcement is expected shortly on the development of statutory instruments which would provide powers of entry and the right to seize or destroy equipment found to have been used in fraudulent ISPM 15 marking activities.
Meanwhile, the Commission on Phytosanitary Measures has approved a revised specification for methyl bromide, including an extension of the treatment time from 16 to 24 hours. According to an ISPM expert, this move answers concerns that the previous spec might not have proved entirely effective with regard to the pinewood nematode. He said the modification would have little or no impact on the UK market where methyl bromide specifications had always stipulated a 24-hour treatment period. At the same time, however, “it will improve people’s confidence in methyl bromide as a treatment route”, he added.
In the US, Canada and Mexico, meanwhile, full implementation of ISPM 15 for imports took place officially on July 5.
Turning to the UK fencing market in more detail, the season began late and appears to have gone off the boil in recent weeks for many suppliers. There is a widespread expectation, however, that the season may go on later this year as homeowners look to make up for the time lost in the garden during the summer owing to the combination of excessively hot weather and competing attractions, such as the football World Cup.
According to research from Homebase, the optimum temperature for carrying out work in the garden is between 13-18oC – and so the recent run of extreme hot weather is taking a lot of the blame for this lack of market momentum. According to a fencing timber supplier, “some companies are 25% down in volume terms this year”. Meanwhile, fencing timber prices have improved marginally over the last couple of months.
According to a leading producer of a range of garden products, volumes are roughly the same as last year but overall value has increased. Sales of sheds and European panels have gained ground but standard lap panels have been struggling by comparison – an indication that the public is spending more money and is looking to upgrade. Other contacts, however, felt that the uncertainty surrounding the housing market in many parts of the UK had made homeowners less willing to spend money on their properties. “People can’t see the value of investing in their homes if property prices are not going up because they might not get their investment back,” said one.
Several leading suppliers of fencing and other garden products have been in negotiation with their major buyers in a bid to obtain higher prices. Such increases are vital, said one, because of the producer sector’s massive cost burden. Energy price increases had been “horrific” while raw material prices had been “going through the roof”, he noted by way of example. Asked whether higher prices were likely to be forthcoming from the buyers, he acknowledged: “I don’t expect it to be easy.”
Keen competition
On the industrial fencing side of the business, conditions are described as “tough” as a result of keen competition and narrow margins. “One or two of the big boys with high overheads have been trying to keep their machines ticking over and so have been prepared to take an order for little or no margin,” said one industry figure. “In some cases, prices are back to where they were several years ago.” One of the knock-on effects of these conditions has been an acceleration in redundancy announcements and business failures during 2006, particularly in the fencing panel sector.
Meanwhile, demand for round fencing blanks is continuing to run well ahead of supply. Noting that prices appeared to have reached a plateau after a period of sustained increases, a contact added: “It’s not so much a question of price but of availability.”
