12 March 2009

ConFor: Reduction in investment reflects short-term challenges

Many UK forestry and wood-using businesses are postponing investment against a backdrop of pessimism in market prospects for the year ahead and difficulties in securing finance, an industry survey shows. However, the survey also points up that there is still confidence in the longer-term future of the sector.
“Of those businesses with plans to invest, over half have now postponed, citing concerns about markets and a lack of commercial finance”, commented Stuart Goodall, chief executive of ConFor. “Although the decline in business confidence appears to be slowing, few companies expect to increase sales in the coming months, with the downturn in the construction sector in particular continuing to hit many businesses hard. That said, nearly half of businesses with investment plans are continuing, reflecting greater confidence in the medium to longer-term future of the sector”.
The survey, undertaken in February by ConFor and the Scottish Forest Industries Cluster, in partnership with UK Forest Products Association and the Wood Panel Industries Federation, is the first full survey in a monthly series that will help to gauge the impact of the economic downturn on the domestic wood-producing sector. There was an encouraging 36% response rate to the survey, with a wide range of respondents from micro-businesses to the largest domestic companies. The results will be used to highlight the state of the sector in dealings with development agencies and politicians.

Key points to emerge include:
• Half of the businesses reported a reduction in construction-related activity in the last three months; none reported an increase.
• Activity was less bleak in pallets and fencing, with some companies reporting an increase in sales in the last three months.
• Woodfuel is the one positive area, with nearly half of respondents reporting increased activity, and none showing a decline.
• Half of the businesses reported difficulty in accessing credit.
• 9% of respondents anticipated that this year’s financial performance could threaten the future of their businesses.
• Prices for sawn wood, board and pulp have, in general, declined over the last three months, and this is feeding through to continued reduction in prices for sawlogs and roundwood.
Adding to the survey, feedback from contacts in the sector is that UK producers, supported by a weaker pound, have secured a greater share of the market against imported material. However, this has to be set against a significant reduction in overall demand. Demand for woodfuel has ‘bucked the market’, but it may slow in the face of a significantly reduced oil price. As many private sector forest owners have withdrawn from the market, there have been instances of local shortages and stronger prices.
“Quantitative easing, near-zero interest rates, and effective nationalisation of banks have yet to make an impact on the continuing recession. With spring approaching, it will be interesting to see if future monthly surveys indicate any change in circumstances”, said Stuart.