Irish timber merchants have been busy this year but several say margins are tight. Predicted price rises for construction softwood have not materialised and competition between merchants is said to be strong.
One trader told TTJ: “Demand is pretty good, volumes are not bad but margins with softwood are disappointing.”
Against this background is a buoyant construction sector, with the all-important housing industry still performing amazingly well.
Department for the Environment statistics show a record 76,954 house completions in 2004, an 11.8% growth on the previous year. AIB Global Treasury estimates the figure could still be as high as 75,000 this year but it expects output to decline “significantly” after this, with completions falling back 13% to 65,000 in 2006 and possibly 60,000 during 2006-11. It said the trend in house registrations and a shift towards apartment construction indicates completions levelling off this year.
Construction growth
UK-based AMA Research’s first report on the Irish construction industry says the sector’s output now accounts for around a quarter of the country’s economic activity. It said the sector was worth about €28.1bn in 2004, up from an estimated €23.7bn in 2003.
The rise of timber frame construction has been a salient factor in the housing boom, but it is a mixed blessing for merchants, as the lion’s share of wood is imported direct to the timber frame manufacturers.
A report on the sector, released at the launch of a new wood promotion campaign by the Wood Marketing Federation, shows the extent of timber frame’s growth. It says 19,000 timber frame houses were built in 2004, compared with just 1,500 in 1995. Market share reached 25% last year, while potential sawnwood consumption for the sector is about 160,000m3. The report recognises opportunities for Irish sawn timber producers in the sector as long as they supply a new and expanded range of products.
Increased volumes of cheap wood are reportedly coming in from Russia but the regularity of supply and accuracy of specification are issues, according to some merchants. One importer of Baltic timber said about 40% of his loads were about 4.8m in length. Scandinavian timber companies are reportedly looking at buying Russian log procurement companies to try to get more control over lengths.
The recent lockouts in Finland’s paper industry, which have led to Finnish sawmills reducing shifts or shutting down early for the summer, have not been an issue for many merchants/importers. However, one contact thought the dispute might have helped clear the oversupply of redwood and he is hoping redwood prices will soon pick up.
Another merchant said the strong housing and repair, maintenance and improvement sectors are proving good for wood products. He said the lack of a large indigenous furniture manufacturing industry means hardwoods are mainly going into the joinery sector. These timbers are commonly used in hotel and bar fitouts, but there are signs that hotel work may start to dry up. Temperate hardwoods have overtaken tropical timber in recent years, with blond woods proving popular.
Hardwood flooring is still in demand but a growth in the number of companies selling the product has created more competition.
A common theme on the sheet materials side is the trend towards imported flat-packed furniture, which has affected the level of panels going into the furniture sector. However, one chipboard producer said: “The market seems to be reasonable and if we can get through July it will have been a reasonable first half of the year.”
London Olympics
He said London’s victory in hosting the 2012 Olympics should have a positive impact. Irish producers were busy when Euro Disney was built in the early 1990s.
On the MDF front, one agent said business was quiet in May and June but unexpectedly busy in July. He said last year’s improvement in the MDF business continued through to March this year before flattening out but it has not been possible to make further price rises, with supply and demand fairly in balance.
The housing boom has meant more kitchens, which is good for MDF, while stair treads and risers are also being made from the product.
But the source added: “The future of the MDF industry lies in the ability to provide more and more specialised products. Without them MDF is simply a commodity and its price yo-yos with supply and demand and often price goes down beyond the bottom line.” Such specialised products include flame retardant, exterior grade and zero formaldehyde panels.
The panels market has been affected by increased energy and resin costs.
Meanwhile, sawmillers are preparing for their summer shutdowns. One mill said the start of 2005 was quiet but business has picked up reasonably well since. Bad weather during the spring ensured a slow start for the decking market.
The issue of log supply from Coillte will still not go away and at least one mill is now importing logs from Scotland to boost low inventories.
Another sawmiller said: “Our biggest problem at the moment is we can’t have price increases.” He said energy costs have soared by 20% and transport rates are also higher.
The company’s Irish market was described as “buoyant” but its UK business has dipped recently, apparently due to a lack of market confidence, with concerns about interest rates and the housing market.
Rising transport rates have affected bidding prices at Coillte’s auctions. The state forester said price rises forecast at the start of 2005 had not materialised, which was “disappointing”. But its log volumes have been better than expected during the first six months. Its most recent auction of harvested logs on July 14 resulted in 70,000m3 sold.
So far this year, Coillte has offered 1.516 million m3, up 101,000m3 on last year, with 1.38 million m3 being sold (contracted) – up 112,000m3 on a year ago. For the first half, the volume of logs taken up by the industry was up by 5% on a year ago to 50,000m3.
