Summary
• Demand for chipboard is well below the same time last year.
• Kronopan has taken three periods of downtime in the past five months, and Sonae UK has taken two.
• Producers are concerned with the rising costs of energy, transport and petrochemical-based raw materials.
• T&G sales have been affected by patchy demand from the housebuilding sector.
• Fewer imports of MFC into the UK mean domestic producers may be able to grow their business.
• Sonae has increased production capacity by 10%.
At this time last year, product availability was the pre-eminent issue within the domestic chipboard market, with one industry contact commenting at the time: “It is reaching the stage where the ability to supply is primary and the price is secondary.”
Twelve months on and, to a large extent, the market has been turned on its head: supply is more than adequate to meet a reduced demand; and with costs continuing to rise, many of Europe’s chipboard producers have been taking action to prevent excessive stock build-up.
On the upside, this week several contacts pointed to a slight improvement in trading conditions during April and to forecasts of an upturn in construction activity later this year and into 2009. A domestic producer commented: “I would expect to see some steady strengthening as the year goes on – mainly from a lack of imports rather than higher demand.”
For the moment, however, chipboard sales are significantly lower than at the corresponding stage of 2007.
European production
In response, a significant proportion of Europe’s chipboard producers have opted to control stocks by controlling the supply pipeline. In the UK, for example, the Kronospan plant at Chirk has implemented three periods of downtime in the space of five months: chipboard production was halted at the north Wales site for 12 days in December, for 10 days in late February/early March and for a further seven days in April. Asked whether further stoppages were likely in the short term, a senior spokesperson said: “We are not really planning for another period of downtime – it’s not something we really want to do.” He added, however, that the company had established a maximum stock level which, if reached, would be the signal to consider further downtime.
Similar moves have been implemented at the Sonae UK plant at Knowsley: having suspended production for six days in the run-up to Christmas, the company took out a further six days in March. “Three of the days were for maintenance but we extended it by another three days to balance our stocks,” a senior spokesperson said. “We are quite balanced at the moment and are not building stock. We can’t afford to build stock.”
Rising costs
“A lot of money can get tied up in stock so it makes more sense to work off that inventory before making more chipboard when energy and raw material costs are rising,” said one contact.
Other producers said that downtime was not being planned at present, although at least one acknowledged that this option had to be retained given relentless cost increases. For the moment, producers are particularly concerned about the rising costs of energy, transport and petrochemical-based raw materials. One pointed out that the forward price of gas was considerably higher than for the corresponding period of last year, and that a recent, slight reduction in methanol costs had been wiped out by higher urea prices.
Another domestic chipboard manufacturer said that resin and wax increases had added £3-4 per m³ to manufacturing costs in the first three months of 2008 alone. “We have swallowed these costs in the first quarter but we would expect customers to be understanding if the market softens further,” he said. At the same time the company would also be taking into account not only the actions of its competitors but also its customers’ “ability to pay” in the light of difficult conditions in their own markets.
With diesel prices rising and under-pressure hauliers seeking to impose further surcharges, “moving board around the country has become an expensive hobby”, said one source this week. Another contact said that the sharp rise pence in the price of diesel would be making “a huge impact on companies running a fleet of trucks”.
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“A lot of money can get tied up in stock so it makes more sense to work off that inventory before making more chipboard when energy and raw material costs are rising” |
However, it was universally acknowledged that the overall costs facing exporters to the UK were even more daunting, not least because of the currency exchange rate. Indeed, a spokesperson for a Continental producer said that the cost of shipping from western Europe to the UK had leapt on average by 8% since the start of the year.
Focusing on the UK demand picture in more detail, the softer market conditions are particularly apparent in raw board sales – a clear indication, according to chipboard manufacturers, of tough times in the construction sector. With latest figures indicating a steep drop in new house builds, a senior spokesperson for one of the leading chipboard producers said that many regional housebuilders still appeared to be quite busy whereas activity levels had slowed among their larger, national counterparts.
Flooring sales
Raw board prices have weakened but “only slightly”, say leading producers, with the 8×4 market described as “more competitive”. T&G sales have also been affected by the patchiness of demand from the housebuilding sector, with some European producers opting to take downtime while others have witnessed an increase in their stock levels. There had been evidence of some weaker pricing in the market place but not “wholesale reductions”.
At the same time, melamine-faced chipboard (MFC) prices have held relatively firm against a backdrop of solid demand for worktops and other forms of kitchen and bedroom furniture. “Although some of our customers seem to be busier than others, we have seen no great decline in the furniture market in general, which perhaps suggests that people are investing in their current homes rather than looking to move,” said a producer, adding that the office furniture market has remained quite busy.
The MFC market is proving sufficiently durable that, according to one contact, “some importers have even put up their prices”.
On the same point, a UK-based producer said that Continental manufacturers had been forced to raise their prices by the combination of a strong euro and higher costs. “There has definitely been a reduction in the volumes coming into the UK,” he said, “so there is an opportunity for domestic manufacturers to grow their MFC business at the moment.”
Capacity cuts
As mentioned, a significant number of chipboard producers in western Europe have taken downtime in recent months while others have closed operations completely. For example, Norbord Inc announced in mid-February that it was to begin consultations with the on-site works council and local unions relating to the future of its chipboard line at Genk in Belgium. And in mid-March, the company confirmed that chipboard production at the facility would cease permanently and with immediate effect; the line’s annual capacity had been 170 million ft².
At the same time, the company once again emphasised that OSB production on the same site would not be affected. In the February statement, Norbord Inc president and CEO Barrie Shineton had insisted that Genk had been acquired “to expand our OSB presence in Europe”; the facility is capable of producing 260 million ft² of OSB per year.
In the latter statement, he reiterated that the chipboard line at Genk had always been considered “non-core” and comprised “older technology”. While the company had continued to operate the line during the recent period of “strong market conditions”, the return to “more normal product prices” had made this “an appropriate time to consider ways to further streamline the site”.
On a more positive note, investment in the UK chipboard industry is continuing despite the tougher market conditions currently faced by the sector. For example, Sonae UK announced this week that, following a significant investment “to further optimise production”, chipboard capacity at the Knowsley facility has been increased by 10% from 40,000m³ per month to 44,000m³. This compares to a monthly average of around 37,000m³ in 2006.
The company has already launched a couple of new products in 2008 and is planning to unveil at least two more before the end of the year.
