Chipboard demand in the UK is holding up, despite the uncertainty created by the EU referendum and the resulting plummet in the value of the pound and the Bank of England’s interest rate cut.
“Demand has remained as good as it was in the first half of the year,” said one producer.
“We have been selling the same and if we dropped sales at all it was mainly because of pricing rather than the market going down.”
Others agreed. “It’s early days following the referendum. There may have been some initial shock and uncertainty but in terms of demand, we haven’t really seen any impact. Most people still seem to be quite con dent,” another producer told TTJ.
This was borne out by other comments. “Brexit and the devaluation of the pound will have knocked everything a bit but I think that’s very short-term,” said one contact.
Another pointed out that, the initial fallout of the referendum aside, the main drivers for chipboard demand remained. “What is important in our industry is housebuilding and refurbishment. The basics have not gone away – there are not enough houses and the existing housing stock is old and needs a lot of refurbishment. That won’t change, even if there’s a short pause while people try to reorientate,” he said.
Increased housebuilding activity has been re¬flected in “quite strong” demand for T&G boards and this was expected to ¬ flow through to the MFC market once houses reached the t-out stage.
The traditionally slower summer period followed directly after the Brexit vote but UK traders report that demand suffered no more than the usual seasonal easing.
However, as one producer commented, a truer picture could, although not necessarily would, emerge as the summer sun and feelgood factor of the Olympic Games fade and the trade enters the usually busier autumn period.
What is certain in the current political and economic turmoil is the impact of the weaker pound.
Sterling has not recovered from its initial post-referendum plummet and at the same time the downward trend in energy prices is coming to an end. As a result, UK chipboard manufacturers have either raised prices – by up to 5% – or will look for an increase in the autumn to cover the higher cost of their imported resins, papers and edging materials.
“We’ve put prices up on imported material and we’re now looking at what increases we pass on in the autumn. The increase will be a little less than 5%,” TTJ was told.
Manufacturers agreed that the market was strong enough to accept the increases.
With the memory of the last financial crisis still fresh and ongoing speculation by politicians and economists that the UK could be heading for another recession, traders have some concerns about the economy’s robustness but they’re resolved to get on with business. One contact raised concerns about the possibility of some building companies or construction materials suppliers facing difficulties but his company would adapt to whatever the economy threw at it.
“We’re following the changes closely and trying to react as soon as we can but these are the conditions and we will deal with them,” he said. “It’s not something to worry over; it’s more about being alert and making decisions at the right time.”
On the plus side of the post-Brexit uncertainty is that the weaker pound makes UK-produced chipboard more attractive and manufacturers expect to benefit from buyers favouring domestic supply.
“We’ve seen the negative impact of the weaker pound because quite a few of our materials are based in euros but we’ve also seen the benefit, and it probably hasn’t come through fully yet, of people looking to source nearer to home from a domestic supply,” said a manufacturer.
Recent and ongoing investments by UK chipboard manufacturers should ensure they can meet that demand.
This shift in supply could range from UK-grown timber through to UK manufactured kitchens, both of which would benefit UK chipboard manufacturers. The latter would increase demand for UK produced carcasses and worktops, while the former would provide a steadier flow of raw material for board producers and reduce the need to import by-products.
“Last year UK sawmills were a bit quiet because of pressure from imported material from Scandinavia and Germany but now UK mills are getting busier again and, with that, we hope more residues and offcuts will support out raw material,” said one producer contact.
Competition for biomass material remains, however, and that comes not from the large biomass power generators such as Drax, which import material, but from smaller users benefiting from the Reneweable Heat Incentive who, collectively, consume a large volume.
“People with smaller boilers can only use fresh timber because the boilers don’t have filters, and that demand is growing. They take UK timber because they have no other choice. There’s availability [of raw material] but you have to pay for it,” said another producer.
Perhaps the mood will change once the UK invokes Article 50 and triggers the exit process from the EU, or if the government drags its heels on starting the divorce, but for the moment the chipboard sector remains optimistic that the market for its products will remain buoyant.
“I’m relatively confident that the UK market is going to remain buoyant and that will be driven out of demand coming through UK manufacturing rather than imports,” said one manufacturer.
And some of those sales will come from housebuilding which is expected to pick up again.
“There’s a lot of reserve in the bank where builders have been hanging back for commercial or political reasons but I think activity will pick up towards the back end of the year, even with the Brexit situation,” said one contact.
“Most builders pre-Brexit were suggesting they’d be busier in the second half so even if it flat lines I don’t see it dropping much further.”
Another was equally optimistic. “Other than currency, we think the market will remain quite stable.”
