Following the publication of our Spring Market Update, in the early days of the Ukraine conflict, there was immediate disruption to the timber market as participants paused and assessed the implication to supply routes, logistics and government sanctions to existing trading relationships. Sanctions imposed upon Russia did not directly affect Scott Pallets’ timber procurement due to our limited geographical exposure in that region. However, such is the timber industry’s global dynamic that we had to manage a ripple effect.
Whilst the conflict continues, our supply chain team has worked tirelessly to navigate a reliable pathway through these issues. Pricing has been volatile, yet we achieved robust security of supply and delivered high confidence levels to customers enabling their business continuity. Daily price movements are still evident and opportunities to lock into monthly or quarterly price agreements, as has historically been the norm, are less accessible.
We thank our customers for their support in working with us to achieve this position. The reliability of accurate sales forecasting has been pivotal, and we would respectfully request your continued diligence in providing this information for our mutual benefit. As a result, we are well-stocked across all key timber sizes and pallet nails, which succumbed to their own supply challenges due to the disruption of steel wire supply.
Only time will tell whether the Ukraine conflict creates further impact, but challenging conditions prevail in the domestic market. It’s unnecessary to add any commentary on the cost of living issues as this will be evident in your personal and professional lives, with the highest inflation for 40 years of 9.1%*. This is feeding through into our non-timber input costs such as utilities, fuel and raw material for the aforementioned steel nails. The Producer Price Index for input raw materials costs shows a 22%* year-on-year increase. Additionally, wage pressure to combat this is significant. We see no immediate relief in these areas until 2023.
From a timber perspective, after seeing a reprieve and reduction in Q1 before the above developments manifest themselves, market indices will likely demonstrate that Q2 could see a price increase towards 10% for home grown timber. However, that is a historical measure, and sufficient data is now emerging from the trade sector and economic reports to suggest that the second half of 2023 may experience subdued levels of activity compared to the rate of recovery we experienced emerging from Covid. This may lead to prices holding firm and a welcome period of stability, but with so many factors to consider, this remains an uncertain picture, and timber prices remain at levels not witnessed for many years.
For reference, European monthly and quarterly timber price movements are well documented in several respected, independent indices, including the FEFPEB Pallet Timber Price Index covering the 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.