The UK chipboard trade is approaching the summer with a tangible sense of nervousness after a difficult period characterised by uninspiring demand from some key sectors. Even though recent shutdowns relating to maintenance and other issues have helped produce a more manageable stock position, few industry contacts are expecting a sparkling sales season this summer.

That said, leading UK producers reaffirmed their intention to stand firm on prices despite what one referred to as “attacks from imported material at lower price levels” which had resulted partly from a reduction in demand from China. He argued that his own firm would take out capacity rather than submit to lower prices: “We can’t afford to reduce prices because costs are so high.”

Another leading UK producer acknowledged that it was difficult to be enthusiastic about near-term prospects, despite the fact that prices had been “stable” and that his stocks were below normal for the time of year after a recent shutdown for maintenance and minor upgrades. “We have not seen any deals creeping in,” he added. “If business maintains the same levels, we will be OK.” At the same time, however, he foresaw no scope to increase prices before the end of the summer.

Meanwhile, Sonae confirmed this week that it was planning to shut down its Knowsley operation for eight days from June 13 to allow for the connection of new chip cleaning plant and new milling capacity. According to a senior spokesperson, this would effectively deny the market 8,000-10,000m3 and would hopefully relieve some of the pressure heading into the summer. Sonae has built up strategic stocks for its main customers in line with its “partnership approach”. The company told TTJ this week: “We hope the customers see this as a long-term arrangement that helps even out the peaks and troughs for them.”

While many industry contacts were talking this week in terms of a relatively stable chipboard market over the second quarter, all acknowledged that conditions were far removed from what one described as “the halcyon days of 2004”. Indeed, the bullish market conditions of only a few months ago have already been replaced by talk of possible capacity closures in a Europe beset by general economic uncertainty, notably in the key German market where chipboard demand has remained fairly depressed despite the disappearance of some capacity. A leading UK manufacturer commented: “If a company can’t make money, it will stop production. We will see rationalisation by acquisition or capacity will be taken out. I think some old, inefficient capacity in Europe will fall off the cliff.” He believed the chipboard sector would increasingly embrace “niche marketing” whereby manufacturers opted to concentrate on certain product areas or specific sizes.

In this context, acceptable market conditions were reported this week by a company that has chosen to specialise in the thicker sizes of raw board. A spokesperson said his company’s performance was being underpinned by decent demand from, among others, the access and mezzanine markets. And he added: “We are a classic case of niche marketing. We look to see whether the customer fits our profile – not the other way round.”

Demand is also reported for MR chipboard, a trend attributed in part to product substitution with OSB.

Raw board

The raw board market has been relatively stable in terms of price, but general demand has been lacklustre and orders from some of the major accounts have noticeably diminished. One contact observed: “It’s been a fairly depressing first half to the year with people buying hand to mouth.” Some offers have been reported but most producers appear to be reasonably well sold and have been refusing to shift on price – to the general approval of the chipboard chain. One Continental manufacturer is reportedly committed until July but, in the main, buyers are not having to strive too hard to satisfy their requirements. While the summer usually sparks a downturn in demand, it was noted that the balance with supply would be helped by summer holiday shutdowns in mainland Europe. Several contacts hoped domestic manufacturers would take any opportunities to stem the flow of production over the next few months.

&#8220If a company can’t make money, it will stop production. We will see rationalisation by acquisition, or capacity will be taken out. I think some old, inefficient capacity in Europe will fall off the cliff”

As far as the UK is concerned, the consensus is that consumers have become more cautious and have reined in their spending, with the result that order levels have been particularly poor from the furniture trade. The European furniture sector – and, in turn, the Continent’s chipboard manufacturers – have been hit by the influx of finished or semi-finished components from China, among others.

Melamine-faced chipboard has continued to suffer the impact of several major consumers going out of business. One producer said worktop sales had been quite healthy but, as a whole, order levels from the DIY and fit-out sectors have failed to enthuse. Domestic T&G flooring manufacturers report adequate market conditions even though demand from housebuilders has failed to match expectations. A spokesperson for a leading flooring producer commented: “We are selling everything we are making.” The fact that his company had not dropped its flooring prices this year was particularly significant, he added, given that four price increases had been introduced in 2004. The same contact also believed the housebuilding sector would be upping its demand throughout the remainder of 2005 after an admittedly slow start to the year.

Other sources were less bullish about prospects for flooring producers, citing evidence of growing stocks and spare capacity in some quarters. That said, there has been no evidence of significant price movements to date in the second quarter.

While prices appear to have moved very little in the second quarter, several contacts pointed to a shift in the market. Whereas P1 had taken something of a back seat to P2 during the better times of 2004 and early 2005 when lead times went out as far as 10 weeks, the former grade was now far more in evidence at prices 10% below those of P2. “The price difference is enough to convince some buyers, but the cake isn’t getting any bigger,” TTJ was told.

The sense of nervousness in the chipboard market owes something to the downturn in consumer spending. Chipboard contacts struggled to fathom the main reasons behind this, as one said: “People hid behind the general election as the reason for consumer caution. Now I expect they will use the EU referendum as a reason to sit on their hands.”

Price rises

Concerns have also been deepened by the expectation of further raw material price increases towards August time. These higher costs will be particularly unwelcome given the margins on which chipboard manufacturers are working and given some startling cost increases already this year, notably with regard to energy and transport. “It’s never easy to pass on price increases but the attempt will have to be made,” was one reaction. Another contact ventured: “Price rises of up to 20% are being mentioned. No-one can take that on the chin – producers will have to try to pass them on.”

However, others believed that such moves would encounter stiff resistance and that, as a result, some producers would be left with “important decisions to make” regarding how they managed their capacity. One industry analyst argued that manufacturers “do not like to produce for stock and so we could see some more downtime”.

On a brighter note, several producers appear hopeful of an upturn in the market towards the back end of the summer. Their aim in the meantime, said one, was to get through the summer with as little disruption as possible. “You can’t switch the supply chain on and off,” he pointed out. “They have businesses to run too.”