This market update comes at an extremely challenging time, as we witness the grave humanitarian crisis enveloping Ukraine. Like many, we have sought to offer practical support, including a financial donation to the Disasters Emergency Committee, where the UK Government provides matched funding.
This conflict has exaggerated the impact in both the business and domestic community of ’the cost of living crisis’, with the highest inflation rate for more than 30 years. Inflation was already of significant concern as we entered 2022. While risks around labour, HGV drivers and material constraints had not gone away, we briefly saw signs of stability emerging after a difficult post-Covid recovery. The Ukraine conflict further adds to widespread market uncertainty and global supply issues.
Sanctions imposed upon Russia do not directly impact Scott Pallet’s timber procurement. We have negligible exposure in that geography, but the global dynamics of the timber industry do mean that the indirect effect is both significant and immediate.
Russian, Belarussian and Ukrainian sourced timber is a key component of European softwood timber supply, providing approximately 10.3 million m3*. This displaced demand will now compete with other existing supply streams, and this is inevitably feeding through into price pressure. Our supply chain remains robust, but our purchasing team is dealing with levels of volatility and complexity way beyond normal market behaviours to ensure continuity of supply. Daily price movements are evident and opportunities to lock into monthly or quarterly price agreements, as has historically been the case, are limited.
Other commodities are equally affected by the imposition of sanctions. Most of us have seen the personal impact at the fuel pump, with prices having risen by 25% since the turn of the year and over 50% since December 2020. Inevitably, this is filtering through to affect haulage and shipping costs that are already under price pressure due to capacity issues. Corresponding pressures are emerging in the utilities sector as constrained gas supply from Russian markets directly impacts gas prices themselves or, by virtue of gas being the driver of significant electrical power generation.
Even the humble, yet critical, pallet nail is impacted. Estimates suggest nearly 50% of the raw materials for nail production into the EU were sourced from Russia and Belarus, and with sanctions in place against steel products, prices for standard nails have more than doubled in recent weeks.
Overall, we recognise this is a dire picture on many fronts. These impacts are also occurring at a time when a natural seasonal peak for the construction sector, the largest consumer of pallet timber and timber generally, is about to commence. In fact, fencing operations have begun earlier due to storm damage rectification works. There is no doubt that business ingenuity will find solutions and alternatives, but these will inevitably take time and are unlikely to contribute to any short-term relief.
The breadth of Scott Group’s supply chain and our successful partnerships with the largest mills in both the UK and the Baltics have enabled us to maintain continuity of service for our customers. Our account managers will be in contact to ensure the implications of this update are fully understood for your business and that we have the best available forecast information to facilitate planning. We can only support each other to ensure business continuity in these challenging times by working together.
European, monthly and quarterly timber price movements are well documented in several respected, independent indices, including the FEFPEB Pallet Timber Price Index covering UK, Germany, Netherlands, Italy and Sweden, the German HPE, French CEEB and UK Afry indices (all available either online or from your account manager, who will gladly talk through any concerns you may have). These organisations will also provide a detailed industry commentary on the current dynamics.