Timber feels the heat

Input prices in the timber pallet & packaging sector have continued to increase dramatically throughout the last quarter of 2013, with further increases scheduled in Q1 and Q2 2014.

In a recent survey on ‘Business Outlook’ for global manufacturing and services by MARKIT, ‘rising raw material prices and shortages’ was cited as the biggest threat to the timber & paper sector in the next twelve months.

There is talk of further increases in plywood, chipboard and MDF and the timber market certainly remains very challenging.

The influence of bio-mass continues to have a serious impact on the sawmilling sector, where the renewable energy sector is competing for the supply of small logs normally consumed by the mills producing pallet and packaging material.

Pressure on log availability and prices has been further exacerbated by ‘non-resident’ saw millers competing for logs in Scotland and exporting them in an attempt to offset issues within the supply chain in their respective countries. Shortages of Spruce, caused by the necessity to harvest Larch due to the inset of phytophthora ramorum, have intensified the situation. As a result there have been major increases in logs, particularly over the last few weeks, as the mills joust at auction to ensure they have enough logs in the forward supply chain.

This situation is unprecedented. There are ‘major’ shortages of logs and some sections of timber in the UK, quotas have been introduced over the last few months and prices have continued to increase dramatically, leaving manufacturers with severe issues in regard to both price and availability. There is NO price advantage to be found via alternative supply. British sawmills are supplying 90% of the material into the UK pallet and packaging sector. They are at full capacity and can attain higher prices in competing sectors.

Volume from the Baltics is still limited. If volumes can be found at a competitive price from this region they are predominantly mixed hardwood species rather than softwood, which come with the inherent issues of poor sawmilling and appearance aligned with inferiority and unpredictability of performance (albeit timber arriving from this region will have a positive impact on general availability). Despite noises to the contrary, there is no sign of timber landing from South America. Sweden, Estonia, Finland and Karelia remain a reliable source for ‘Kiln Dried’ boards, subject to satisfying the price expectation of the timber mills. However, further increases are predicted as demand improves in Europe, North Africa, the Middle and Far East.

With material representing 60-80% of the price of typical wooden pallets & packaging, manufacturers are unable to absorb these costs if the industry is to remain viable.

We have continued to see a significant upturn in enquiries and tender requests from users of timber pallets and packaging who are faced with price increases and/or supply issues. In line with our commitment to our existing customers we are NOT offering supply against volume, which would have a negative effect on availability to our clients.

We are well placed to mitigate further increases and ensure continuity of supply, through continued investment and our strategic purchasing alliance, in line with the exacting standards of quality and on-time delivery that are expected by our clients.