Summary
• Chipboard prices have continued to rise during the summer.
• The temporary halt in raw board production at Sonae is affecting supply.
• Rising costs are encroaching on margins.
• Egger is to install a new impregnation line and short-cycle lamination line at Hexham.

With post-rebuild production at Sonae UK’s fire-hit Knowsley facility not scheduled to come on stream until the end of October, and capacity cuts taking place on mainland Europe, some sector experts have been pointing to signs of shortage in the chipboard market.

The pressure exerted by supply, and also by rising costs, is reflected in the fact that prices have been rising even during the quieter summer months – despite the fact that some producers have been operating at full capacity throughout the holiday season.

“This shortage is more acute in P4-P5 T&G flooring,” one producer told TTJ this week. And he added: “Chipboard availability will continue to be an issue in the coming months, so we will see prices increasing further.”

Comparisons with Europe

UK prices for P2 chipboard are still some way below those in Continental Europe, especially for big users such as worktop manufacturers, the same contact said. And his view was echoed around the chipboard industry, with some contacts putting the current price differential between UK and Continental product in the region of 30%.

Given the size of this price gap, imports into the UK from elsewhere in Europe have dwindled, creating even more of a clamour for domestically-produced chipboard. “We’ve been running fully and near to record levels,” said one UK producer. “We haven’t stopped at all in the summer and have no intention of doing so.”

But the pressure of rising costs, margins are “under constant threat” and “manufacturers have to charge at a level that gives them a return”, said another domestic producer figure. To date this summer, there has been “no evidence of wholesale discounting on product values in the UK chipboard market”, he added. The contact identified resin, energy and transport as the main cost concerns at present.

Another producer said his gas bill had dropped slightly during the summer and that timber costs had also settled down – partly as a result of Sonae’s absence from this market. However, these small gains have been far outweighed by the price of urea, which reportedly escalated 66% within a relatively short space of time before stabilising 55% above its more familiar levels, he said.

Urea costs have certainly influenced the scale of this producer’s latest chipboard price increases, to be implemented across the entire product range over the course of July, August and September. Having noted that the average increase is around 8%, a spokesperson for the company added: “We haven’t finished catching up on all of the cost increases.”

Chipboard imports

The position at Sonae UK and the drop-off in chipboard imports has boosted demand for his own company’s products – notably raw board and melamine-faced chipboard, he added. In this context, latest Timber Trade Federation statistics reveal a 6.6% decline in the UK’s chipboard imports in the first four months of this year compared with the same period in 2010.

According to Sonae UK, the objective of the rebuilding schedule – put in place after the fire at the Knowsley site in June – is to be running at 80% of capacity by the end of October and, in a second phase, to be fully operational by the end of the first quarter of next year with 450,000m3 of installed annual capacity. The second stage of the rebuilding process may be subject to planning approval, the company said in a statement issued last month.

The focus of the rebuild is one of two wood intake and wood preparation areas. A spokesperson for the company confirmed this week that cut-to-size, T&G and melamine lines were back in operation at Knowsley within 10 days of the fire in June. He also insisted that, during the production outage at the plant, “no customer has gone unsupplied” and that the Sonae Group has given an undertaking to ensure ongoing continuity of supply.

UK?investments

In a company statement issued in July, Sonae UK’s managing director Nigel Graham reiterated that the parent company “remains totally committed to the UK market and its business partners”. He added: “There is confidence that this new investment will improve operational performance and address reliability issues we have experienced in the past.”

Investment is a theme that extends to other domestic chipboard producers. For example, Egger confirmed at its recent annual press conference that, within the current business year, a new impregnation line and a latest-generation short-cycle lamination line will be installed at Hexham. The former is already in place and means the facility becomes self-sufficient in manufacturing impregnated paper. “Previously, in peak times we would rely on overseas impregnation capacities from our parent and/or sister plants,” the company said. The lamination investment is planned for spring next year and will be designed to “make us more flexible in production and give us options around producing new, potentially deeper textures”, it said.

In July, meanwhile, it was announced that Norbord had completed the final phase of a £25m investment programme at Cowie to improve and extend its particleboard operations, including the replacement of a forming station and pre-press components.

According to Karl Morris, managing director of Norbord Europe, work continued on a “24-hours-a-day, seven-days-a-week” basis while the forming stations were replaced and the new forming bins installed. Completion of the final stage of the project has provided “added operating flexibility, a broader product mix, further quality improvements, capacity growth of over 10% and a reduction in total manufacturing costs”, he also noted. According to Barrie Shineton, president and CEO of Norbord, the upgrade “is delivering material usage reductions and line speed improvements beyond our expectations”.

Energy sector competition

Norbord describes such cost reductions as “important” in the bid to offset the financial outlay on wood which has been rising due to strong competition from the energy sector. The company argues that the government’s strategy places too much emphasis on large-scale, wood-fired, electricity-only generation and “is threatening to destroy the wood panel and many associated industries across the UK”. This week, another interested party in the UK chipboard sector expressed concern over the potential impact on domestic timber availability of recyclers “finding routes into export”.

Returning to the chipboard market itself, the recent financial results issued by Norbord for the second quarter of 2011 suggests that average chipboard prices in Europe showed a 12% quarter-over-quarter increase. At the same time, Norbord’s European mills ran at full steam – except for three weeks of downtime related to the Cowie chipboard mill upgrade which started in the first quarter of this year and was completed in the second quarter.

As regards the immediate outlook for the UK chipboard market, an obvious wild-card presents itself at the time of writing – namely the as-yet unquantifiable effect of the latest eruption of negative economic news on both sides of the Atlantic. Although the situation at Sonae UK has helped to ensure that the summer lull’s impact on chipboard orders has been less pronounced than normal for the other producers, the US’s downgraded credit status, stock market losses and euro-zone worries have combined to create a general nervousness in the market.

It should also be recognised that, given the current position at Sonae and the drop-off in imports, the traditional upturn in UK chipboard demand immediately following the holiday season “could mean more potential shortages as we come out of the summer”, TTJ was warned this week.