Summary
• High winds have boosted fencing demand.
• FCA reports ongoing timber treatment problems.
• Demand for new pallets remains depressed.
• Buyers of pallet wood maintain caution over forward ordering.

There’s nothing quite like a good strong wind to boost business in the fencing sector.

One large fencing producer told TTJ that some of its merchant and DIY customers had increased their orders by up to 300% following the storms at the start of 2012.

“It has been a very, very strong start to the year, with all hands to the pump. We would be expecting a relatively modest level of sales at this time of year and we are perhaps three to four times further forward than usual,” he said.

“It’s compounded by individual customers tending to over order, reacting above what they have sold. If they think there will be any sort of shortages they buy more.”

Demand is highest in the south-east and north of England, with manufacturers’ stocks reportedly being drained very quickly.

Record production

Extra shifts and overtime have come into play, with a contact at a large fencing manufacturer saying its production would reach record levels this week. “Orders are enormous compared to what we had budgeted,” he said.

One trade customer told him that its fencing sales were double normal levels. “Talking to my customers, they are saying they are busy,” he said, adding that he had heard that every fencing contractor in the Ascot area was booked up until the end of February.

He said he had a contingency plan for just such a spike in demand and was carrying large stock levels, but said the whole supply chain needed to be prepared for such sudden growth as there was only so much capacity in sawn fencing component production.

“Every three to four years the wind is going to blow and every time the sector is not prepared for it,” he said.

Another contact reported plenty of fence panels in stock but thought shortages could follow in the trade.

The Fencing Contractors Association (FCA) also told TTJ that its smaller members were very busy because of wind damage.

Questions over inflationary pressures on raw material centre on how long the high demand continues. The last major storm in 2007 was followed by rapid price escalation for fencing components, though it was also a time of all wood fibre prices rising and shortages.

“We are currently ordering a lot more timber,” said one manufacturing contact.

Timber prices

Raw material prices remain stable thus far, though there are suspicions rises might only be weeks away.

This year an extra Bank holiday for the Queen’s diamond jubilee and the Whitsun Bank holiday being moved to June 4 to create a long weekend could boost business in the same way as the Royal wedding did last year. The weather, as always, will be the determining factor.

Manufacturers will be glad to start the year on a high after the wane in consumer spending and economic uncertainty of the past six months. “Some key customers think 2012 will be flat at best, with one or two predicting quite a substantial single-digit sales decline,” said one.

Another contact admitted business “wasn’t wonderful” but continued gloomy news in the media was affecting confidence. But the stability of raw material prices and supply was welcome.

Timber treatment to Hazard Class 4 continues to be an issue. The FCA reports about 10 recent complaints from south-east members about fence posts failing prematurely. One member who installed two Class 4 gate posts to hold expensive electrically-operated security gates for a residential development said the posts had failed.

Another working on a 7km perimeter fence contract is being forced to replace the entire first phase because one in five posts failed – while he was only doing the second phase.

“We need somebody to find a solution because there is no confidence in User Class 4 treated timber performance,” said an FCA spokesperson.

The FCA is recommending contractors consider looking at Highways Sector Scheme 4 preservative treatment for a 30-year service life.

Pallet buyers cautious

On the pallet side, one component supplier said the market was competitive, with a lot of undercutting of its quotes. “There is a lot of caution among buyers and there is a lack of forward ordering. People don’t want to buy a lot of stock because prices have been going down and, because of the economic uncertainty, they don’t know what the market is going to be like.”

The contact has reduced prices for its Douglas fir pallet wood because the mild weather has led to blue stain in wood, a problem for food industry operators.

Many customers continue to recondition pallets, rather than use new ones. A recent Timcon report showed recovery and repair rates had increased.

One manufacturing contact said pallets had been identified by customers as a cost-saving area, especially in the fast-moving consumer goods market. People are holding onto pallets and trying to save money, aided by changes in contracts. New pallet demand remains weak.

“The most surprising thing about 2011 is that more pallet manufacturers did not go out of business,” said the contact. “Unless demand improves, there will have to be further capacity reductions in 2012.”

He said timber was in fairly free supply, with a slight easing of prices.

The news that IKEA was changing its pallet policy from wood to paper pallets from January 1 is causing concern. IKEA uses about 9-10 million pallets in Europe and if more retailers follow suit it could impact the supply chain and structure of the pallet/pallet wood industry. About 25% of UK sawn timber output is channelled into pallets/packaging.