¦ After a record low in 2009, log prices have risen this year.
¦ Only 5-7,000 housing units are expected to be built next year.
¦ Irish mills are still targeting the UK market.
¦ Merchants are trying to become more retail focused.

Irish timber traders throughout the supply chain will generally be relieved to see the back of 2010 but there seems little prospect of improvement next year either.

“It [the market] is extremely difficult,” a merchant contact told TTJ. “Things are worse than 2009 and the outlook says things will be 10-15% worse next year. At the earliest I think we’re looking at 2012 for any improvement – and I think it’s being bullish saying that.”

Irish economy

As TTJ was going to press Ireland was still thrashing out a €90bn rescue deal with EU and IMF officials. The country is also awaiting the government’s budget on December 7, which is expected to include some tough measures.

“There’s so much uncertainty around at the moment,” one contact told TTJ. “Until we see the results of the budget it’s very difficult to make any forecasts. The banks aren’t lending, mortgages are difficult to obtain, and those who have money are hanging onto it because they don’t know if they’re going to have a job next year. It’s all to play for at the moment.”

A merchant described the Irish economy as “a basket case”. “We have high unemployment, uncertainty over Irish financial markets and the big debt burden. While personal savings are increasing, the willingness for people to spend is decreasing unless they perceive it as really good value,” he said.

This lack of consumer confidence, combined with Ireland’s stagnating housing market – forecasts are for 5-7,000 new units next year, compared with 80-90,000 in 2007 – means merchants’ business is slowing.

“There are about 800 merchant centres, from individual stores to big multi-branches. That’s fine if you’re building 80,000 houses but there isn’t enough business for everyone to survive,” said a merchant. “Margins are being squeezed and volumes are decreasing.”

Many merchants are trying to mitigate the fallout by becoming more RMI and retail focused but “to become a B&Q or Woodies overnight is very difficult”, he said.

Timber frame market

The dire housing market, which is marred by a glut of unsold properties, has had a significant impact on the timber frame sector. The Irish Timber Frame Manufacturers’ Association said that in the boom times, when timber frame had 30% of the newbuild market, the organisation had 27 members – it now has 15.

“A number of timber frame manufacturers have gone out of business and we foresee there will be more next year,” said a spokesperson.

The only construction that is taking place is one-off self-build projects and even this demand is diminishing: for the first six months of this year commencement notices for single-use residential dwellings were down 18% on the first half of 2009.

However, the spokesperson said timber frame would come into its own again as it could help meet the more stringent energy-efficiency regulations and the government’s aim for carbon neutral housing by 2013.

“If manufacturers innovate and can deliver services at a reasonable cost then they will survive,” he said. “There will be a timber frame industry – it may be quite small or it may be dominated by a few key players.”

UK sales positive

Against the backdrop of the depressed home market, Irish sawmills are continuing their UK sales drive and say they’re positive about the market’s prospects in 2011. But for them the problem this year has been the price of logs.

“At the start of the year we had relatively cheap logs, which reflected the difficulties in the market. We budgeted for an increase but up until the end of August we’d paid €3.9m over the budgeted figure,” one sawmiller said. “The log price has had no relation to the market and when that happens it’s impossible to achieve a margin of any type.”

A Coillte spokesperson confirmed that log prices had been high this year, but they had compensated for record low prices last year and had now fallen since July.

After its last auction for 2010 on October 21, Coillte had contracted 97% of the year’s volume. “It’s been very strong,” he said, adding that more private growers had been attracted to the market by higher log prices.

Coillte was due to hold its first auction for 2011 material this week and sawmillers were united in wanting lower prices, especially as they are targeting the UK market.

“Up until two years ago 70% of our production was to the Irish market so log increases could be achieved but now we must have a log price that’s relative to the UK market,” said one sawmiller.

One merchant believed the log prices were creating a two-tier softwood market. “Imported prices are still on the high side and Irish mills seem to be making timber for nothing and yet they’re paying higher prices for logs so there’s a huge price differential. In a declining market price is king so it becomes very difficult for importers to compete,” he said.