Timber availability and pricing in the Covid economy

By October 1, 2020Insight, News

The Covid-19 crisis has impacted all areas of business activity across the globe and the timber market is no different. Even in the most ‘normal’ of times, timber availability and pricing is dependent on multiple factors but the unique challenges of this once in a generation crisis have brought even more volatile dynamics into play in the market, both here in the UK and overseas, causing a major knock on impact to the cost of producing timber pallets and cases.

A year like no other

As things stand, timber prices in the UK are at historic highs with product inventory significantly reduced across the board.

Once the crisis broke back in March, imports ceased and many timber mills were forced to scale back production or mothball operations altogether, leading to an immediate reduction in the amount of product coming onto the market. At the same time, with many millions of homeowners confined to their homes and gardens, demand for fencing and DIY products soared, placing further pressure on supplies. Then once the UK emerged from lockdown some months later, increased demand for timber from the construction sector further ratcheted up the pressure on reduced inventories.

What’s more, the situation has been compounded by similar dynamics across the world’s biggest timber consumption markets such as China and the US, where buoyant new construction starts post lockdown and dramatic price gains (in the US, the Random Lengths Framing Lumber Composite Price has posted 23 consecutive weekly gains through September 18, reaching $955 to shatter its previous record of $582 from June 2018) have led to increasing amounts of inventory being specified from German and Scandinavian mills that would normally cater largely to UK customers. Over the months ahead, the economic recovery in these markets is expected to continue to pick up pace, resulting in further pressure on timber demand.

Unsurprisingly, the net result of all this has seen pallet timber prices in the UK consistently on the rise for the past six consecutive months, according to latest IHS MARKIT/ CIPS UK Manufacturing PMI figures from 1 October.

Where we are now

In any typical year, the final quarter would usually see elevated prices and reduced availability slacken off as timber demand from the construction and fencing sectors reduces. 2020 has been anything but a typical year however, and despite reduced overall demand for timber pallets and cases and UK and European sawmills back operating at full production capacity, we expect to see timber pricing remain high and product availability constricted for the remainder of the year and into 2021.

In Ireland, a key supplier to the UK market, timber supplies are currently at a record low, with serious concerns that log availability will be severely reduced over the coming quarters as a backlog of timber licence appeals slowly gets processed.

In Canada, mountain pine beetles continue to wreak havoc, having destroyed some 15 years of log supplies in British Columbia already, with infestations now spreading to forests in Alberta and the Pacific Northwest. Now, a further devastating outbreak of spruce beetles is threatening similar numbers of trees in North America, heaping further pressure on global timber supplies.

Closer to home, Britain’s looming exit from the EU is also encouraging companies to safeguard maximum pallet product inventory in advance to cope with any potential operational challenges and supply interruptions. Users of recycled pallets are also facing shortages which is heaping additional pressure on pallet timber as they look to purchase new pallets to supplement depleted stocks.

Finally, as we rapidly approach the winter period, no one can predict with any certainty what further challenges Covid-19 will present to further impact the timber supply chain.

It all adds up to a year of unprecedented market dynamics squeezing timber inventories around the world and putting maximum pressure on price – with little change ahead on the immediate horizon.

 Continuity of supply – our customer pledge

We know this is an unsettling time for customers and have worked hard since the crisis began to optimise our operations and provide continuity of service. Thanks to our longstanding strategic buying partnerships and relationships with prominent timber suppliers, we have been able to ensure a consistent supply of timber packaging solutions to customers, absorbing significantly increased costs ourselves in the process.

Going forward, the situation remains highly uncertain, but our customers can continue to be confident of a reliable, continued supply of timber pallets, cases and crates as companies look to mitigate the worst effects of the pandemic and put themselves on a stable footing to thrive in the new Covid economy.

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