Weak first half year hits consumer’s pockets
Shares of companies that had anything to do with lending or consumer spending where hardest hit in the first half of 2013, this weak performance of the retail sector has caused sawmills supplying the manufacturing sector to have an oversupply of timber.
For example “trading conditions at Ellerines, deteriorated rapidly during the six months as lower disposable incomes and higher indebtedness affected both the willingness and ability of consumers to spend” (Mercury Business report, Tuesday 21 May 2013 pg 13). Quite simply if retail chains are not selling product, factories producing product are not going to get orders to manufacture and manufactures will not order timber. This oversupply at mills is supported by the South African Lumber Index for April 2013 “Mills are cutting back on production in response to decrease demand…, in an attempt to prevent increases in saleable stock holding. “ Customers also know this and have been able to negotiate competitive prices for timber of late, and can also use the mills as storage as they know that they can get timber delivered within days.
It’s not all doom and gloom, as the flux in the market is coming to an end, as we have seen all the major oversupply in mills being moved or in the process of being moved. We are also moving into the historically manufacturing intense period, with the lead up to December holidays. Thus stocks and prices at mill should firm up during the course of June and going forward to year end.
What has interested me, is why has the first half of 2013 been so bad and Johny Lambridis (portfolio manager of Element Investment Managers) answers this question: “Lambridis said that three of the four major influences on retail spending were now in weak to negative territory ‘Net real job creation is non-existent, the rate of increase in social grants is declining, unsecured lending is likely to be cut back so the only positive factor for retailers is the likelihood that salary increase will be high’ he said” ” (Mercury Business report, Tuesday 21 May 2013 pg 13).
With all the above uncertainty in the market, it all boils down to buying smart for your manufacturing process, e.g. if you can use a 22mm thick board instead of a 25mm thick board then do it, there is a massive 12% saving, you get so much more volume per buck. If you would like to know more information on different lumber products and grades, give Sam Edwards a call (082 5730919).
We are also launching the 12mm un-sanded (12x1830x2750) chipboard soon, this will be sold in conjunction with the 16mm un-sanded chipboard. If you would like to know more information regards this, please call Preston Scott (082 4908775).
