Irish mills find respite in UK market

Summary
¦ Irish mills say log prices are too high.
¦ The tough Irish market is affecting merchants.
¦ Irish mills agree that some industry consolidation is needed.
¦ The UK market was quieter in the first quarter.

Irish mills are being squeezed from all sides but they remain optimistic about the UK market.

With sawn timber prices having dropped by around €5-10 in the Irish market over the first quarter, log prices said to be out of kilter with the UK market and with no sign of recovery in Irish demand, sawmillers have a lot to occupy their minds. In the UK, which is now their principal outlet, they are not “overrun” with orders but there’s sufficient demand to keep them ticking over.

“The UK market is not like it was in 2010 when there was a clear shortage of material. Our order books aren’t as full and people are more cautious about placing business because of the uncertainty over the UK economy,” one sawmiller told TTJ.

Traders expect the traditional increase in activity in the second and third quarters but they’re unsure as to how strong it will be. “There isn’t a cut and thrust buoyancy,” said one contact. “It’s a fragile scenario.”

However, Ireland’s mills generally remain optimistic about the UK, pointing out that even if it contracted, it’s still a large market.

Competition

And rather than competing with their British counterparts, Irish mills regard their competition as other imported material which may well be in demand later in the year to feed Japan’s rebuilding programme.

“We supply perhaps only 5% of the UK market. Really we’re competing against Scandinavian and Baltic suppliers,” said one.

There is still some demand for timber from Ireland’s domestic market but that in itself is causing some headaches. “Merchants are starting to go to the wall, so keeping an eye on the debtors’ ledger has become much more of a feature in supplying the Irish trade,” TTJ was told.

“Also, with such a collapse in volume, customers’ usage has dropped significantly so the costs of servicing them have risen because there are few full loads.”

“The map has changed significantly for Ireland and we have to make do with what we have,” said another contact. “There’s no doubt that we are a net exporter of timber.”

And he added that it was difficult to predict when domestic demand would improve. “All the ghost estates have to be dealt with before there’s any significant improvement in building,” he said.

Log prices

Regardless of demand, the main issue for Irish mills is the price they’re paying for logs, which they estimate is 15-20% too high.

“Our biggest challenge at the moment is getting logs at a price relative to the UK market,” said one contact.

Prices have eased from their “phenomenally high position” around May last year, when they were double those of UK log prices, but mills say the cost is still eroding their profitability.

“The log cost is by far the biggest cost in the process so if that’s wrong, everything else is wrong,” said one sawmiller.

The mills rely on Coillte for 90% of their raw material and this year there could be less alternative supply from private owners who took advantage of last year’s higher prices.

“We have enough logs but it’s going to reach crisis very quickly,” said one mill. “As soon as the market turns and things get busy it’s going to create a problem.”

A Coillte spokesperson said that in the fortnightly auctions up to March 24, 31% – 564,000m³ – of this year’s volume had been offered, and 97% of that had been contracted.

“We’re not trying to manipulate supply in any shape or form. We’re trying to keep as much flowing to the market as we can,” he said.

“We believe the fairest way is to have it spread out throughout the year so our customers know that in the next fortnight there will be more timber coming to the market.”

Supply maintained

And he said Coillte had maintained its supply this year despite new, more challenging regulations regarding felling licences, hen harrier habitats and logging road construction.

The log price is also a reflection of Ireland’s production overcapacity, which is another issue that continues to vex the industry. There’s been no consolidation since the late 1990s and, while everyone agrees that something has to be done, they can’t agree on what that is.

“The industry doesn’t have many weak players. It’s easy to say it needs to rationalise but a lot of mills are family owned; it’s not something that’s going to happen easily,” said a contact.