Ever-rising costs, decent demand, supply disruptions and lengthening lead times have combined to provide chipboard manufacturers with ready justification for further price increases. The message to the market place – which, in general, appears to have accepted the need to pay more for its supplies – is that chipboard prices will inevitably remain under constant review.

Reviewing recently-implemented and proposed price moves, one leading UK chipboard producer raised its prices by an average of 5% in April while another has confirmed that it is following up increases of between 4-5% at the beginning of 2006 with further average increases of 6%. Another manufacturer contacted by TTJ this week said that its second round of 2006 price increases was being finalised and would be implemented shortly. Elsewhere, a senior spokesperson for another producer described price increases as “ongoing”, adding that different products were being moved at different times but that increases were generally in the order of 5% on each occasion.

A senior spokesperson for one of the leading producers said his operation was “completely sold out” and was also looking at healthy order books “for the rest of this year”. While lead times on standard board were between four and five weeks, these times were extending up to 10 weeks “for anything out of the ordinary”. He said further increases were merited given significant resin cost increases in the second quarter and the higher timber costs created by competition from the biomass sector.

Other justifications offered by manufacturers for price increases were “quite lively” demand from the merchant sector, and the strain being placed on existing capacity on the Continent. Pointing to a sizeable and “permanent” reduction in European chipboard capacity over the past four or five years, a domestic manufacturer commented: “The Continent is fully booked. They have been asking us if we can supply them, but we can’t. We are making more chipboard than we were a year ago, but we still can’t supply everything we’re being asked for. Demand is quite lively but lack of supply is leading the way.” He noted that his com-pany had been receiving a steady flow of enquiries from as far afield as the US, Canada and China, but added that business was being turned down in order to focus on the needs of the established, domestic customer base.

The European supply picture has also been influenced by events on the other side of the Atlantic. A fire on April 18 damaged Sonae Indústria’s second chipboard line at Lac-Megantic in Canada and, according to reports, production is likely to be affected for several months. With this source of supply currently disrupted, significant volumes have been sucked from alternative sources, including an already-busy European market.

Import pressure

Given that chipboard prices in the UK are towards the lower end of the spectrum and that Continental producers are not struggling for business, UK producers have seen a relaxation of the pressure normally applied by imported board; indeed, they have been picking up orders that might ordinarily have gone to overseas mills. A UK agent for a European producer confirmed that his contacts wanted to maintain their presence in the UK market but that, at present, they were unwilling to commit the same volumes as in the past when substantially higher-priced business was readily available elsewhere.

As a result of this diminished import pressure, domestic producers’ lead times have lengthened considerably: 10 weeks was the longest period mentioned to TTJ this week while several producers acknow-ledged that delivery times were out as far as six to eight weeks.

Chipboard demand in the UK is not necessarily healthy across the board, with several – but not all – contacts identifying the melamine-faced market as relatively sluggish. The suggestion is that overcapacity across Europe has been hindering the implementation of price increases for MFC. According to one UK producer, part of the problem lies in the difficult conditions being encountered by many buyers of this material. “Increases depend on ability to pay,” he said. “We don’t want to push customers who can’t pay into liquidation.” Another contact said that the domestic tongue and groove flooring market had even witnessed some price weakness, although his view was contradicted in producer circles.

The same source also said that, while chipboard manufacturers were pushing through higher prices, distributors were “having to take some of the pain” because their own – and in many cases, extremely powerful – customers were unwilling to accept the full impact of the price increases.

&#8220Supply and cost drivers will keep all panel prices moving upwards. We would need another 15% increase to recover all of our extra costs”

Despite concern for some of its more beleaguered customers, the UK chipboard production sector is committed to regular price increases. The view of senior manufacturers is that recent price increases have still failed to keep pace with climbing costs. One producer said his company’s gas prices had now been fixed for next year at a level 100% higher than a year ago; the company was looking to minimise the impact by “managing” its energy more efficiently – for example, by looking to use certain equipment at non-peak times.

Another company contended that, across a range of chipboard products, its raw material prices had gone up by an average of 50% during a period in which its selling prices had been raised by just 36%.

And the cost increases are not over: for example, resin prices are expected to rise again during the summer. In this context, one company has confirmed plans to push up its prices on moisture resistant chipboard by 11%. And these costs pressures are not unique to the UK. A reliable source said this week that chipboard manufacturers in Germany were also looking to adopt a “drip, drip” approach to price increases in response to double-digit increases in key cost areas. Comparing current predictions for the final quarter of this year with prices in the final quarter of 2005, the following increases are anticipated: timber 40%; glue 28-30%; and energy 55%.

Ongoing increases

Rolling all of these factors together, it is not surprising to hear a senior producer comment: “I see 2006 as a year of ongoing increases – a permanent process.”

“Supply and cost drivers will keep all panel prices moving upwards,” said another company “We’d need another 15% increase to recover our extra costs.”

It was also said that “nobody is getting rich” from commodity chipboard, with the result that manufacturers were moving increasingly in the direction of added value.

In its review of 2005, the European Panel Federation (EPF) reported that chipboard producers had returned much improved results for the final quarter after a difficult July-September period. However, for the year as a whole, European chipboard production fell by 1.5% to 33.8 million m3 while consumption followed up an “exceptionally good” 2004 with a decline of 4% to around 30 million m3, according to the federation. The EPF also highlighted manufacturers’ deep concerns about the increasing costs of wood, energy, resin and transport.

It has also been confirmed that, last month as scheduled, Egger UK began clearing the ground for the £100m development of its Hexham chipboard facility in north-east England. The development will include the installation of a ContiRoll continuous production line in readiness for start-up next year. “Construction work should start in a few weeks,” TTJ was told.

Final confirmation is still awaited on the Sonae Indústria deal to buy the Hornitex Group companies in Horn-Bad Meinberg, Duisburg and Beeskow. Chipboard is produced at all three locations, while the plant at Beeskow also manufactures MDF.