A decent start to the new year has built expectations within the UK chipboard sector that 2005 will bring a continuation of the steady but relentless price progression witnessed in 2004. If 2004 was viewed by many in the trade as a year in which prices played “catch-up”, manufacturers are insisting that further forward momentum is necessary in 2005 given that return on investment remains unsatisfactory.
Positive conditions in the UK market place have been created by reasonable demand and restricted supply. Full order books, extended lead times and even the emergence of shortages in some areas have been identified by industry experts. “Some specifications are difficult to get – particularly thicker sizes of raw board and furniture sizes,” said one company. “Some mills are still being selective in what they produce.” As for prices, none of the producers is “prepared to give away any of the gains they have made” over the past year or so.
Concerns over availability prompted many businesses to increase their orders either side of the Christmas break, thereby further boosting the market. Meanwhile, there have been few complaints from customers about the latest round of price increases; while one contact suggested these rises had been accepted “grudgingly”, everyone else said the increases had gone largely unchallenged.
New year production
One leading UK producer said his company had been unable to fill all of the orders placed towards the end of 2005 and that production was being allocated at the start of the new year. Recently-introduced company price increases of around 6% across the board had drawn an “understanding” response from the majority of customers, he added.
He also said that attempts were being made to develop longer-term, fixed-price contracts with some customers although, in general, these would not extend beyond the end of the first quarter because increases in costs were difficult to gauge. With the recent substantial rises in prices of methanol, urea and electricity, he said that efforts must be made to “pass increases down the line” while emphasising the importance of “not pushing our price up just for the sake of it”.
“Demand has been strong enough that we could have sold more – particularly the thicker raw boards. T&G flooring has also been good. The construction flooring market is still quite strong.” However, there had been no major turnround in melamine faced chipboard. “We are not prepared to take loss-making prices on MFC – we have stuck by our strategic customers but have been putting forward prices that reflect real costs.”
The state of the MFC market has led to knitted brows throughout the chipboard sector. Another source said: “The paradox at the moment is why cost and sales price increases are not showing through in MFC – especially when demand seems quite healthy.”
A producer spokesperson acknowledged that, despite an improvement in volumes during January following a “poor” December, MFC prices remained less upwardly mobile than those for other chipboard products – a fact he attributed to over-capacity and greater competition from imports.
The same spokesman said that his own company had continued to operate over the Christmas period and had succeeded in building stocks, but while availability had duly improved, “volumes are going out strongly”. Company prices had been increased by around 3% from January, he added.
Another leading chipboard manufacturer said that, in general, availability remained restricted and delivery times extended in the UK “because European producers are busy servicing their own markets”, and there was little evidence of imports from companies without an established sales presence in the UK market. Indeed, TTJ learned this week that some UK agents have been asked “not to push for orders” in this country because of the strength of demand at home and because UK prices are still by no means the most attractive available.
While the construction boom could be considered to have come off its peak, lack of investment in new chipboard capacity over recent years has meant that supply and demand have achieved a much greater balance. Indeed, so delicate is this balance that some experts believe a significant pick-up in demand could mean that “the market will get tight very quickly”.
Most other contacts were confidently predicting further price progression before too long, although the majority expected the next round of increases to take effect from early in the second quarter rather than in the first quarter. A number of contacts said that percentage gains in chipboard prices will not exceed those of 2004 but, in truth, the scale of price increases will depend to a large extent on that great unknown, namely how costs will develop.
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“We are not prepared to take loss-making prices on MFC – we have stuck by our strategic customers but have been putting forward prices that reflect real costs” |
Investment planned
Against this largely positive backdrop, Egger UK’s recently-announced decision to invest approximately £100m in its Hexham production site indicates not only the company’s commitment to the chipboard market but also a measure of confidence in long-term prospects. The Austrian-owned firm says its aim is to “develop the existing site into the most advanced of its kind in Europe” by replacing existing production lines with a state-of-the-art ContiRoll continuous production line that will deliver increased operating efficiencies.
Given that machinery and equipment had yet to be specified, it was not yet possible to comment on the effect of this project on capacity at Hexham (which currently stands at around 440,000m3 per year), a spokesperson said. However, the company has stressed that the P2 and P5 grades of chipboard would remain the major focus of production at the Northumberland site.
The exact timescale for the development is also uncertain; the aim is to lodge a planning application with the local authority during the early part of 2005.
Given the fine balance in the UK between chipboard supply and demand, market players are generally relieved that Egger is not sinking the huge investment into a massive expansion of capacity. “It would add a degree of uncertainty at a time when people are seeing a steady increase in the value of the product”, TTJ was told.
Bottleneck eased
In addition to Egger, Sonae is another company to invest in upgrading its UK operation. The company has begun the “de-bottlenecking” exercise at Knowsley outlined in the previous chipboard report, which entails spending some £5m on new cleaning equipment and a further £1m on an environmental upgrade programme, including a new stack for improved dispersion from the plant. Both projects are scheduled for completion in June this year.
Also as mentioned in the previous chipboard report, Kronospan has been planning a series of relatively small investments which will have the effect of improving efficiencies and output at its Chirk facility. A spokesperson said that this process has begun and that the benefits should start to become apparent during the second quarter.
In another chipboard-related development, Kronospan Switzerland is understood to have acquired part of the Hornitex production operation.
Confidence in the UK chipboard sector has been counter-balanced to some extent by three main concerns; that key consumers in the furniture sector will be ever harder hit by imports; that chipboard imports in general may begin to play a more prominent role in the market place during the coming year; and that diversion of wood chips and sawdust into the biomass industry may create serious supply problems among established consuming industries.
A leading producer said that board producers might not be able to compete for raw material with the subsidised biomass sector and one described the latter’s appetite for timber co-product as “a massive threat to our supply.”
