Decline signals major concern for importers as costs rise

The sharp drop in the value of the pound against sterling, the dollar and the deustchmark has caused major headaches for Irish…

The sharp drop in the value of the pound against sterling, the dollar and the deustchmark has caused major headaches for Irish importers. Nevertheless, the fall is welcome news for exporters, particularly those sourcing their raw materials locally and exporting to Britain. "A lot of companies exporting to the UK have been enjoying a better time since September 1996 when sterling took off," says Mr Colum MacDonnell, chief executive of the Irish Exporters' Association (IEA).

He noted that British buyers were not naive and had tried to negotiate prices down with their Irish suppliers. But he said life had generally become easier for those exporters.

The drop in the pound's level against the deustchmark and other European currencies has also brought relief to those selling their goods in continental Europe.

Mr Eamonn Hodge, financial director of synthetic fibre manufacturer, Wellman International, said the company was happy with recent developments but would like to see the pound go all the way down to its ERM central parity of DM2.41. Wellman exports to 30 countries, with some 50 per cent of sales going to Germany and Britain and a further 30 per cent destined for France, Italy, Spain and the Benelux.

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But although the pound was moving in the right direction for Wellman, Mr Hodge said it was not all good news.

The company faces an added threat in its European markets from south-east Asian competitors who are benefiting from the recent collapse in regional currencies.

Many of Ireland's exporters are also big importers and will see the increased competitiveness resulting from pound weakness eroded by higher raw materials costs.

"It's a double-edged sword because we source most of our yarn abroad," says Mr Peter Conlon, chairman of the Irish Knitwear Exporters' Group.

One knitwear manufacturer says that to get that design edge, she has to source most of her yarn from England, Scotland or Italy, which offsets the advantages of a lower pound.

With oil priced in dollars, higher energy costs also have to be factored in, particularly for manufacturing industry.

But for those whose main business is importing goods from abroad, there is no "swings and roundabouts" effect and the currency's fall means tough times ahead.

"A sheet of wood that cost £26 last week is costing £28 this week. I'd like to know where it's going to be next week," said Mr Michael Smith, of Woodstock Timber, in Ballyfermot, Dublin.

Woodstock Timber employs five people and has an annual turnover of between £1 million and £2 million. It imports veneer, veneer boards and hardwood, mostly from Britain. Its clients in the main are Irish kitchen and office furniture manufacturers.

"If this thing keeps slipping, then I will keep getting dearer and I will lose a certain number of customers."

Also, while most of his customers will have to keep buying imported wood and wood products, the price increase will affect the selling price of his customers' products. This will lead to an overall decrease in sales and, therefore, the need for basic materials.

Mr Michael Ryder, of Easons, said the price of imported magazines would be reviewed at the end of the month. The price of imported books would also be considered at around the same time, he said.

But unless there is a rapid reversal of the pound's recent performance, the consumer looks set to pay more.

Newspread, which distributes magazines and newspapers to retailers around the country, says it operates on a forward contract basis, buying in sterling once a quarter.

The next round begins on February 1st, so Newspread will be buying toward the end of this month and the price at which it buys will be the one passed on to the consumer over the next three months.