There are only so many times you can say “unprecedented” before reaching for the thesaurus for an alternative word.
But in the case of the pallet industry, timber pricing really is in uncharted waters. With two years of continual price rises since the Brexit vote year, the prospect of 16mm pallet wood breaking through the £200/m3 barrier remains a possibility.
Many eyes will be on the next price movement to see whether we might be moving into a period of price stability or whether the upward trend continues. Interviews conducted by TTJ have revealed mixed opinions on this.
The graphics in FEFPEB’s pallet timber price indices vividly show just how much UK pallet timber prices are outstripping those in the rest of Europe and you wonder how long it can go on before something gives.
Of course, the fencing industry shares the same small diameter log source as pallets and has suffered similar price pain at a time when consumer fencing demand has been less than stellar.
While we may have all been cheering on England in the World Cup, many a domestic fencing project was being put on hold across the UK as we baked in record hot temperatures.
Pallet Sector Challenges
Talking to pallet manufacturers it’s clear how rapidly prices have accelerated in 2018. “Timber pricing has been at the highest level that we have ever seen in the pallet industry,” said one contact.
“Our view is that if we are not at the top of the market we are very close to the top.” Pricing for standard 16mm x 75mm pallet timber is in the £185-£190/m3 region.
“We tend to work in quarterly cycles so we hope that by the final quarter prices will stabilise.”
Pallet industry representative body TIMCON’s president John Dye said the publication of the next Pöyry price index for pallet timber would be interesting.
“We’re living in hope that we are getting near the peak,” he said.
“There are mixed feelings about what’s happening. Some think there will be a small increase and others say it will be the same rises as the previous quarter.”
He said if it was the latter we could see pallet timber prices hitting £200/m3, a watershed moment for the pallet industry.
Prices have risen about 50% since the start of 2017, with 25-30% of that coming so far this year. A 10% home-grown pallet wood price increase was reported in Q2.
“It has been a bit easier to get price increases from customers today compared to 12 months ago because then some people were not passing on price increases or were being bullied by customers,” said one contact.
“That is not an option now but customers are getting pretty fatigued by it.”
An Irish pallet producer reported timber price increases in August.
“We’ve never seen a price increase in August,” he said. “Sawmills are normally more focused on going on holiday than putting their prices up.
“Some people think we are beginning to get to the top of the market. We are entering a quieter time of the year for construction and fencing and hopefully it will smooth out in October and November. But there’s no guarantee it will.”
The contact also reported increased pressure from UK pallet producers looking for timber in the Irish market.
Pallet Buyers Patience Tested
On the whole, timber pallet buyers have been understanding when the increases are passed on to them because everyone is in the same boat.
While multinational customers plan their budget a year ahead and do not like surprises, some contacts report over five successful pallet price increases being passed on in 2018. “We’ve passed on most of our pain,” said one contact.
The inevitable lag between timber price increases and passing on the rise to customers is still reportedly creating a challenging situation.
Demand from the soft and alcoholic drinks industry has been extremely busy due to the hot weather and the World Cup, with demand generally across industries described as good, but not exceptional and many pallet manufacturers reporting good order levels.
But there are signs the level of price increases is making pallet customers look anew at how they operate and for alternatives to new pallets.
Consequently, more new pallet producers are starting to look at tapping into the repair/ reconditioned pallet market as an option.
Pallet manufacturers on the other side of the Channel without the same level of timber prices are also seeing the UK as an opportunity for them, with reports of German and Dutch companies shipping pallets to these shores.
In terms of timber availability, reports earlier this year from UK sawmillers of a doomsday scenario for certain standard 16mm pallet sizes have not materialised, but you can understand why the warnings were made as a perfect storm in terms of low timber availability, high pricing and high demand across all sectors was hitting in Q1.
“We feel there has been an easing of supply in the last three months,” said one pallet manufacturer.
“We do not see shortages being an issue for the rest of this year or the first part of next year.”
So, despite multiple challenges – also including the challenge from biomass buyers – and more than a few poor financial results in the last full financial year during a period when the industry was slower to recover timber price increases, the pallet sector has demonstrated remarkable resilience.
The next move for 16mm thick material will be a key barometer for the future.
Fencing Sector
In fencing, it’s not been a brilliant year in the consumer/DIY sector.
One large producer reported “another challenging year” with the severe winter affecting the key early part of 2018 and record hot weather hitting demand in the summer.
The contact said demand came back in May and June but not enough to plug the gaps. “People do not want to go out replacing fencing in the hot weather,” he explained.
“It’s quite an arduous job from a DIY perspective and people would rather be lounging around in the heat than putting a fence up. The World Cup was not a good thing [for the fencing sector]. Garden furniture has been strong though.”
He added that his core fencing sales are 4% down this year. “This is disappointing because last year was not a particularly good one either.”
Another dampener on the sector includes a lack of major storms to drive replacement fencing work.
The contact said retail/DIY business had suffered more than merchant trade.
Structural changes in the DIY retailer sector have seen the Homebase/Bunnings business sold to Hilco, with considerable uncertainty over its store network and staffing numbers, while Wyevale Garden Centres’ is being sold and broken up. Buying Group business was reportedly strong, however.
Another smaller manufacturer said while he had considerable farmers and fencing contractors sales (with many specifying 30-year Highways Standard treatment levels) he had also noticed merchants who normally purchase fencing from buying groups coming to him for some products they can’t get hold of – sometimes packs of featheredge and posts.
Fencing timber supply has been challenging, he acknowledged and has required a different approach of late. “You have to be loyal with your supplier,” he said. “You have to plan ahead a lot more, sometimes over six weeks in advance or you might not be able to get wood.”
The contact said supply of 1.8m length featheredge boards was tough and he was using 1.65m featheredge boards with a gravel board for customers.
“We are having to cut a lot more to make things,” he added.
He quoted featheredge timber prices at £220/m3 for standard 150mm wide products, compared to £158/m3 in April last year.
Contacts report a 20-25% growth in fencing timber prices in 2018, with a larger producer saying log prices had risen 30% since the start of the year to about £60/tonne. He is bidding now on harvests in two to three months time, with “prices still rising”.
Customer Acceptance
“Customers have had to accept it, you just have to let them know in advance there will be a price increase,” said another producer.
“They have been pretty good about it. “The difference now is that everyone is in the same boat. Having the stock is the saviour for us and we have more stock on the ground than usual at the moment.”
Standard 6ftx6ft lap panels are now fetching anywhere between £20-£23 while featheredge panels, depending on specification, are reaching into the high £30s.
Meanwhile, larger producers report a shift with stockists business falling back and online sales for home delivery increasing at retailer customers.
Sawmilling Perspective
Sawmills report continuing pressure on raw material destined for the fencing and pallet sectors.
“There is still a large pressure on small diameter roundwood,” said a sawmill contact. “There’s not enough of it around and it’s very difficult to secure in adequate volumes.”
The very tight situation in Q1 is well documented: mills had problems accessing the timber in the forest because of severe weather, which had a knock-on effect on production and timber supply. Similar forest access issues were being experienced in the Baltics.
At the same time, forest owners were seeing price inflation and high demand for biomass, panels and timber and many were waiting to see how much further prices were going upwards before releasing their timber.
The contact said sawmills won’t catch up the Q1 lag and will miss annual volume targets, with the difference possibly being filled with imports.
“But most sawmills are pretty lean businesses and most will still have had a reasonable year if they can get the roundwood.
“We need to get to a period of stability where it’s not continual increases,” he said. Meanwhile, in Euroforest’s latest market report, released in early August, biomass was reportedly regularly fetching in excess of £50 per tonne.
The purchasing power of the biomass sector, combined with log processors prepared to take produce in at 14cm diameter, meant the round fencing and pallet sectors were “being pushed from both directions”.
One trader told Euroforest he could sell every load of fencing stakes two or three times over if they had the raw material.
