The stability that settled on the UK chipboard market earlier this year has continued and there is unlikely to be little change during the third quarter and into the new year.

"Overall, things aren’t bad," said one manufacturer. "It’s not feverish; it’s more a steady thing this year."

Traditionally autumn is the busiest time of year for the chipboard industry but even if there’s little growth in demand, UK manufacturers are, and will remain, generally positive about sales. One commented that the market had been strong throughout the year and the company had probably enjoyed its busiest summer in terms of both production and sales.

"The market is certainly more active, although not buoyant," he said. "Consumer confidence is stronger and there’s a lot of activity in public spending. Some of the big retail and hotel chains have also kept the specification market busy over the summer."

Others agreed that shopfitting and the kitchen, bedroom and bathroom sector were providing strong demand for MFC.

"Contract furniture customers are telling us it’s going well with very strong demand from big customers, such as hotels," said a supplier.

Fortunately this is offsetting what some perceive to be a slower rate of growth in housebuilding than anticipated, which has impacted on T&G board in particular.

"I don’t think builders have been as busy as expected," said another supplier. "Housebuilding is not down on where it was, but it probably hasn’t risen as much as people thought it would," he said.

This impression is backed by housebuilding statistics which show that although housing starts in England in the first half of 2015 were marginally higher than the first half of 2014, in the second quarter they were nearly 4% lower than the previous year. In the second quarter private housing starts were up by 5%, but public starts were 14% lower.

It was around this time last year that two UK mills, encouraged by this anticipated increase in housebuilding activity, decided to stop producing P2 board. Now they are back making it to order in certain volumes.

"The housing market was getting busier; first, brick supply when out to months and they predicted that on flooring chipboard too, but it never really happened," a distributor said. "When housebuilding jobs come off, they come off but mills wouldn’t produce P2 chipboard if they had a demand for flooring. They’re not making it for stock. but if you have an enquiry for five or six loads they will look at it."

Another contact, however, said they were doing well with P4 and P5, but demand for 38mm P6, often used for mezzanine floors, was quieter. They believed this may be the result of the large supermarket chains putting expansion plans on hold.

Stability spells time to invest

One benefit of a more stable market is that it provides an easier environment for companies to make capital spending decisions.

One such is Egger, which has made two significant investments at Hexham recently. A new, £30m resin plant to supply chipboard and production processes was completed in the summer. The three-year project involved the replacement of the old plant through a staged approach. The company is also completing a new warehouse and despatch unit, which should be in use by the end of the year. It will provide extra storage for finished products and Egger says it underlines its focus on an "extended finished products range and overall service provision".

Earlier in the year UK manufacturers earmarked autumn for a possible rise in prices, but this won’t now happen, largely thanks to the sterling/euro exchange rate.

"With the strength of the pound I doubt whether anyone is going to go for an increase," said a producer. "When you convert to Euros, prices are very attractive".

Another didn’t want to risk upsetting the current market balance with a price hike. There had been some cheaper deals during the summer, although nothing serious enough to affect price levels, and some importers had recently raised MFC prices by 5%, "which is easy for them because the currency has gone up more than 10%".

But one UK manufacturer said there was little cost pressure to raise prices either.

"We’re seeing increases in some areas," they said. "Our wood costs are still an issue in the UK but there has been support in other areas like glues and energy, which has helped.

Overall we’ve had a slight increase in our cost base but we’ve been able to offset it by increases in production output," he said.

Currency-induced import caution

While the industry is acutely aware of the sterling/euro exchange rate and how this can affect import volumes, opinions vary on the strength of this impact.

"It would be silly to say there’s no effect, but it’s not that huge and I think people talk about it more than it actually merits," said a supplier. "Western European economies are now improving, so I think producers there are increasingly busy with their own markets."

This is borne out by TTF statistics, which show import volume in July 30% below July 2014. In the first seven months, chipboard they were down 13.2% on the same period of 2014. All leading exporting countries shipped lower volumes to the UK. Germany and Portugal increased market share, but only because their overall reduction was lower than the average.

However, one supplier said there were signs of "growing pressure" on some European manufacturers to cash in on the exchange rate and "offload volume when it suits them". But this was bulk chipboard, rather than MFC or decorative boards, which UK customers required just-in-time.

Underlining the fluidity of the import situation, though, another manufacturer had picked up an increase in MFC volumes from Belgium, Germany and France.

Uncertainty over exchange rates also made buyers more cautious.

"It results in people watching what they’re doing," said a distributor. "You don’t want to overstock as exchange rates mean availability is good so you don’t have to, but when that happens there’s price pressure."

He added that P2 chipboard was one category that could come under threat from cheaper imports, with reports of Spanish board being "dumped" on the UK. He had predicted after the summer that Belgium would ship more to the UK, but the Spanish material had "upset the apple cart a bit".

"If people can buy it at £20-24 per m3 cheaper they will do it," he said.

He qualified this, however, by saying buyers would still only take as much as they needed rather than build big stocks.

"People will take things at a price if it’s helpful to them, but there’s a limit to what they can take into store. Nobody gets rich through storing chipboard."

Giving the alternative view on import impacts, a European manufacturer which supplies raw and decorative boards to the UK, took issue with the refrain that it’s all about lowest price.

He also stressed that not all European manufacturers ship to the UK on a favourable exchange rate whim.

"We try to offer product at a competitive price, but we’ll never be cheapest, that’s not our goal," said a spokesperson.

"We’re not one of those solely interested in the UK at the moment because of the exchange rate. We want to be permanently in the market and build a sustainable business."

He said that, with Scandinavia, the UK market was performing well in EU terms, especially relative to France, which he described as "very difficult". Southern Europe was "still a disaster".

And he expected the UK to remain stable, with perhaps small increases in demand. UK contacts also anticipate a steady next few months and the same into 2016, although with the pound/euro rate adding uncertainty.

"You can’t really forecast anything these days," said a manufacturer. "But with a bit of wishful thinking, I’m hoping for a very good autumn. There’s stability with potential for continued market growth. It’s a good outlook." Another said that most customers were optimistic too.

"No-one’s expecting alarming growth, but everyone is quite confident that we’ll remain stable," he said.

"We’re pinning hopes on continued UK economic development and, taking a share of that organic growth."