Summary
• Most Irish mills have cut production.
• In January, sawn timber sales were down 27% and construction timber sales 40%.
• Only 20,000 house completions are forecast this year.
• The euro/sterling exchange rate is impacting on carcassing mills especially.
• Coillte is bringing forward sales of smaller diameter logs.

Ireland, once one of Europe’s fastest-growing economies, fell into recession faster than many other European Union states, and some believe it will be slower to recover. Its dramatic boom perhaps meant that the Celtic Tiger had further to fall and any hopes of a soft landing were dashed when the economy went into recession in October.

In January, unemployment was running at 9.2%, the highest monthly level since records began in 1967, and a fortnight ago 100,000 people marched in Dublin in protest at the government’s handling of the recession.

All this has taken its toll on the Irish timber industry, with some traders describing it as the most difficult period on record.

For Irish sawmillers, hit by a sluggish domestic market, poor demand from the UK – one of the main export markets – and the strength of the euro, the situation is the worst that many can remember. “That’s not trying to talk it down, that’s the way it is,” one told TTJ.

The mills took extended breaks over Christmas and most have now cut production to a three-day week. One pallet and fencing mill, which introduced a three-day week in October, has reduced production by 25-30% and is mainly cutting to order. Mills have had to reduce production in the past, TTJ was told, but never for such a long period of time.

In January, overall sawn timber sales were down by around 27% on January 2008, while construction timber sales had dropped by 40%. While mills are reducing production, importers and distributors now have high levels of stock on the quay-side after taking deliveries in January.

House completions

For carcassing timber there’s little prospect of an improvement this year. Ireland’s once booming housing industry is expected to complete around only 20,000 houses this year compared with 78,000 in 2007. That’s going to have a big impact on timber frame manufacturers who, in 2006, had more than 26% of Ireland’s housing market.

There are about 100 timber frame manufacturers in Ireland and Northern Ireland and among Irish Timber Frame Manufacturers Association members around seven have ceased trading or mothballed plant over the past 18 months.

“This year we’re looking at around 20,000 completions and that’s not going to support 100 timber frame manufacturers. It’s effectively the figure of 1991 and then there were only five timber frame manufacturers,” said manager Philip Mahoney.

UK market

In such times, Irish mills would usually turn to the UK – which normally takes 30-40% of Ireland’s carcassing output – for orders but the euro/sterling exchange rate makes the UK “challenging and virtually prohibitive”, said one sawmiller.

“Just when you think you’re going to get one thing sorted out, another one comes along and bites you,” said another sawmiller.

The only saving grace for those in the fencing sector, he said, was that their Baltic competitors were suffering the same exchange rate barrier, whereas carcassing mills were facing pressure from the Swedes who could offer a price advantage with krona. “If you’re a carcassing mill you’re getting a double whammy,” he said.

While there may be little hope of any improvement in the carcassing market, the spring could bring some upturn for the fencing sector – and short-term shortages. “If the fencing sector takes off you will see gaps in some specifications very, very quickly because the timber is not on the ground,” TTJ was told.

For the moment though, prices are about 30% lower than six months ago and some mills are getting rid of older stock at greatly reduced prices.

A key problem in the current market, another sawmiller said, was that while Coillte had reduced log prices, the reductions were not in line with market trends.

“Coillte needs to move log prices so that we can, in some way, compete in the UK market. Log prices have moved, but they haven’t kept in line with the changes in international timber prices,” he said.

However, Coillte said its prices did reflect the market conditions. “As things get difficult we are responding,” TTJ was told. “Our reserve price would reflect the difficult market conditions for timber traders.”

Smaller logs

Also, as demand was moving away from carcassing timber, Coillte was bringing forward sales of smaller diameter logs. “We’re responding positively and trying to assist the mills,” the spokesperson said.

He added that, while construction industry orders had fallen from the high demand of 2007 and the first half of 2008, there had been a marked increase in demand for wood energy.

At the panel mills it’s a similar story to the sawmills. They are adjusting output and tak-ing downtime “as and when it’s needed”.

As the mills are export-based the euro/sterling exchange rate could not be ignored, but it was not distracting the mills from the UK market. “We have a long-term view of supplying these markets but certainly the exchange rate is a factor that we’re having to deal with,” a panel mill spokesperson said. “The volatility between the euro and sterling is unhelpful.”

He said that in February orders were pretty much on budget and business should pick up to some degree in March and April.

Trading in standard panels at distribution level was “duller than we would like”, but there were still opportunities in major projects, especially government spending. “It’s very important not to get sucked down into a negative mindset,” he said. “There is construction work going on but it’s more hand to mouth than anybody would like.”

One merchant agreed that there were reasons to be positive, such as Ireland’s young population which would need houses, but generally 2009 would be a difficult year. Most Irish merchants had reduced staff levels and were not carrying large stocks. “Nobody is naïve enough to buy forward because prices will drop further,” he said.

Demand was flat across the whole range of timber products and even the Irish-themed pub market in Europe, which kept joiners busy, was now quiet.

Like other contacts, he believed that the Irish housing market had not bottomed out yet and until banks resumed lending, timber sales would suffer. “We need a bit of volume and a bit of activity and liquidity from the banks.”

The Grafton Group’s 2008 results, announced at the end of February, reflect the difficult market, but the company says it is in a strong position to benefit from any recovery.

During 2008, the company’s turnover fell by 17% to €2.67bn and operating profits before rationalisation were down 55% to €118.6m

Executive chairman Michael Chadwick said trading in January and February continued to decline, exacerbated by heavy snow, and Grafton continued its focus on cost control and operational efficiencies.

“Grafton’s businesses have strong market positions and brands in the UK and Ireland and expect to emerge from the current market downturn as more efficient enterprises well placed to take advantage of growth opportunities,” said Mr Chadwick. “Both economies have been resilient to past economic shocks and will eventually recover from the current downturn.”