Not for the first time, sources within the timber trade were this week blaming a combination of the Jubilee Bank holiday and the football World Cup for an abnormally quiet start to summer trading. June was described by several contacts as a particularly poor month for sales whereas July seemed to be busier by comparison, suggesting that a certain amount of demand may have remained pent up during those weeks when, as one prominent industry figure put it, “the nation celebrated rather than shopped”.

Standard chipboard finds itself in “a difficult trading position”, not so much as a result of any change in sales volumes but rather because of a “steady price erosion” over a matter of years, said one domestic manufacturer. Prices are “way below the levels of two or three years ago” and yet the chipboard market remains “highly competitive” across the board, said another UK producer. “Any movement at all in raw material prices will have to be passed on to the customer immediately.”

According to one contact, the marginal nature of the chipboard business has naturally made manufacturers resistant to any price decreases, especially since transport and raw material costs have continued to rise. “Distributors are of the same mind,” he added, “because transport is getting more expensive and is a big part of their costs.”

Several non-producers with an interest in the chipboard trade were doubtful whether some mills could be maintaining any semblance of profitability.

Fewer bargains

Some industry players have been heartened by the fact that prices have held in recent months and that the summer has thrown up “fewer bargains than normal”. But while some experts are hopeful that the autumn may bring an upturn, price levels to date in the UK have failed to show any major signs of improvement despite some major disruption to the supply pipeline. The bigger picture is provided perhaps by latest figures from the European Panel Federation, which indicate a 4.6% overcapacity in Europe’s particleboard industry during 2001, while output fell 3% to 31.6 million m3 compared with 2000.

In many parts of Europe this summer, producers have been trying to turn this overcapacity into a harmonious supply-demand balance through judicious breaks in production – exquisitely described by one leading UK player this week as “the expedient re-adjustment of production schedules in the light of market requirements”.

Value-added products

“I would be surprised to see any price improvement [in standard chipboard] during the rest of this year,” TTJ was told by a leading UK manufacturer. His company was choosing to switch its emphasis to value-added products where possible because of the “too aggressive” nature of the standard board market. Another prominent expert in the UK manufacturing sector played down the chances of higher chipboard prices in the near term, even in added value areas where he identified strong competition from Europe. He added ruefully: “The major problem in this industry is that we are ruled by production. Price reductions are seen as a way to get business.”

Noting that prices were stable but “too low” and that resin prices were showing signs of further upward movement, the senior figure from the manufacturing sector added: “We need to get some profit back into chipboard from somewhere. The cupboard is bare – most manufacturers have already cut costs but there is only so far you can go.”

Major production problems at more than one works during the summer have sent reverberations through the market but have failed to produce higher price levels. “Demand must have been generally very quiet for this not to have had a bigger impact,” TTJ was told this week.

&#8220The major problem in this industry is that we are ruled by production. Price reductions are seen as a way to get business”

The main production hiatus appears to have been reserved for the Sonae (UK) Challenger plant at Knowsley which was hit by a dust extraction explosion on June 1. The company explained this week that, following repair and improvement work, it had resumed production for a fortnight in late July and early August, prior to the plant closing down for another two weeks for its planned summer holiday shutdown. Production would recommence “with a vengeance” on August 19, the company confidently informed TTJ.

In the wake of the explosion, Sonae has relied on sourcing material from other parts of its group to meet demand and, so far as possible, to protect its market share.

Lacklustre furniture industry

The chipboard market in general has been dampened by the effects of the holiday period, as well as by the unspectacular market conditions experienced by leading consuming industries. The furniture trade, for example, has been described as “not disastrous, but only ticking over”. It is similarly lacklustre in other parts of Europe, leading Continental chipboard producers to look further afield for their sales.

Several contacts expressed the hope that, with the reduced chipboard supply seen this summer and rumours that some stock levels have been dented as a result, there could be more tightness in the market during the autumn. One contact was even optimistic that a 2 or 3% price increase might emerge before the end of September given the fact that chipboard had survived most of the summer without suffering a price collapse. “The distributor base would be very happy to see more value introduced into the market,” he added.

Elsewhere, however, the general feeling is that prices are stuck in a rut. “Prices are bumping along in the UK and it will take some outside influence to make prices go higher during the second half of the year,” said one contact. “In my opinion, chipboard is becoming a bit of a Cinderella product – people are measuring things instead against the comings and goings of plywood and MDF. The engineering that goes into chipboard is being under-valued.”

His view was that any price increases were likely to be delayed until the first quarter of next year at the earliest.

On a positive note, at least one flooring specialist was reporting excellent sales over the summer – particularly in added value products for which demand has been “absolutely booming”, he said. In looking to explain why flooring sales had climbed to record levels in July, he pointed to the robustness of the new housebuild market and the growing bias towards two-storey developments. “We are quite surprised by the level of orders – this has enabled us to hold our prices while others have been giving special offers,” he said. “We have a strong order book for August and, since September and October are traditionally our busiest months, we are optimistic.”

A UK flooring producer said his company was “very busy” but acknowledged that prices were no better than stable. Another contact pointed to at least some degree of weakness in the flooring market, as well as to evidence of direct dealing.

Meanwhile, the melamine-faced chipboard market has been claimed to be suffering from the effects of “too much material sloshing around in the UK” and the seeming inevitability of “silly prices being available from someone, somewhere”, according to one contact. However, other sources felt the melamine market was holding its own, with one suggesting “we are on target to meet our budget for this year”.

On the news front, a spokesperson for the Hornitex group confirmed this week that the business – which includes four chipboard operations in Germany – remains up for sale, with administrator Dr Werner Schreiber “still awaiting the right offer”.