Although many in the chipboard sector have been anticipating an increase in demand, the arrival of the upturn somewhat ahead of general expectations has forced domestic producers to import supplies in order to supplement their own output. At the same time, double-digit percentage chipboard price increases have reappeared after a long absence – a fact which customers may not be celebrating but which producers insist is entirely appropriate given the robustness of current demand.
One producer increased its P2 prices by more than 10% in this year’s final quarter and has already signalled an intention to introduce hikes "of a similar magnitude" at the start of 2014. On the distribution side of the business, the same company’s 6-8% September price hike on T&G flooring would be replicated at the beginning of January, a spokesperson said.
Having advanced its raw board and T&G prices by 7% on average and its melamine-faced chipboard by around 3% back in September, a fellow domestic producer confirmed further price increases would be implemented "by early January at the latest". According to a spokesperson, raw board prices were likely to rise by 6-7% and T&G "perhaps by not as much".
While acknowledging that it was "not easy to have this conversation with customers", one producer said these price increases should be seen as an attempt to restore "a bit of reality" to the market that "we haven’t had for a few years". In recent times, producers had been forced to absorb a significant proportion of cost increases when market conditions would not allow chipboard product prices to be increased at the same pace, he said. Even now, timber costs had jumped 7% since the second quarter while melamine, methanol and energy were all rising.
Production costs
Pointing to gathering upward cost pressures on energy and timber in particular, his counterpart at another UK production operation echoed the view that producers’ costs had always been running ahead of board price increases in recent years. And he said of the latest chipboard price hikes: "I think the market can take it now. I think it’s possible to push these increases down the line."
The pick-up in UK chipboard demand had been expected to take place in the autumn at the earliest and perhaps not until early 2014, according to one producer. In the event, demand had begun to improve noticeably as early as July this year and had since achieved a decent momentum, with newbuild housing the engine for growth, although demand was also healthy from the kitchen and furniture sectors. With a 15-20% increase in housebuilding widely touted for 2014, current demand for chipboard appeared eminently "sustainable", he said.
In terms of both sales volumes and turnover, a spokesperson for another UK chipboard producer said the business had achieved record upon record in virtually every month since July. Noting the "generally very strong air of confidence" among customers, he pointed to a significant improvement in demand from manufacturers for retail and from the furniture sector. But while government initiatives had undoubtedly helped to boost the company’s chipboard sales into the housing industry, he did not expect volumes sold into this sector in 2013 to be too far ahead of those recorded in 2012.
UK housing market
In Norbord’s third quarter review, president and CEO Barrie Shineton said it was now clear that the UK housing market was gaining real traction.
"New home starts in the UK are up 25% year-to-date as the various government initiatives supporting homebuyers are having the intended positive effect. Panel markets are reflecting this recovering housing trend, with demand and prices strengthening steadily over the past 18 months. All our plants are running at capacity and I am optimistic that our European financial performance will improve again next year," he said.
Chipboard prices in the third quarter were 8% higher than in the same period last year and 2% ahead of second-quarter 2013, Norbord added.
In the UK, supplies have become sufficiently tight that domestic producers have resorted to imports in order to supplement production – the first time this has happened for six or seven years, one said this week. Although stocks had been healthy at the start of 2013, he added, these had been gradually eroded as demand gathered momentum, to the extent that a "tipping point" had been reached in the UK market whereby oversupply toppled into undersupply. His own company’s "tight" stock situation had led to "some allocation and rationing in certain products, particularly on the raw board side of the market".
If order files in 2014 proved to be similar to those in the second half of 2013, board supply was likely to be "quite challenging", he added. Asked whether more imports were therefore likely, he said "there is not a lot washing around waiting to come over here" given the amount of Continental capacity that had been taken out in recent years. Another UK producer told TTJ that "we are struggling to get chipboard in" from mainland western Europe because of the capacity shuts.
According to an established Continental supplier to the UK market, its lead times on P5 and P6 for structural applications was now 8-10 weeks while "we don’t have availability of any P2 chipboard until the end of January".
Chipboard capacity continues to come under the microscope on the Continent. In Sonae Indústria’s third quarter results package, for example, the company’s CEO Rui Correia notes: "The challenging conditions that continue to prevail in Germany and the continuous losses that are being incurred at our Horn-Bad Meinberg plant, as a result of lower demand for particleboard and industry overcapacity in the region, have led to the decision to enter into negotiations with employee representatives and trade unions regarding a reduction of the particleboard activities performed in that plant." Later, the company alludes to "discussions being held with employee representatives and trade unions regarding the possible closure of particleboard and melamine activities at our Horn-Bad Meinberg plant". Looking to the near term, Sonae Indústria expects the "challenging environment" to persist in Europe and for trading to "remain at the relatively low levels already evident during the last few quarters in this region".
Boosting capacity
Partly because of the difficulties involved in topping up with chipboard supplies from abroad, "our main thrust at the moment is to make more", a UK producer told TTJ this week. An upgrade to the chipboard press during the company’s summer maintenance shutdown is claimed to have boosted capacity by around 15%. The company would continue to pursue options for upping output, he added.
Egger is demonstrating its confidence in market prospects by revealing plans to invest £10-12m in replacing old technology with new in the impregnation lamination area of its Hexham facility. The project, start-up of which is scheduled for the second half of 2014, would increase laminated production capacity slightly, said a spokesperson.
But with the constraints on imports and with Sonae UK’s relatively recent departure from domestic production, the strength of demand in this country is certainly presenting its producers with a challenge. One admitted his company was still struggling to replenish its stocks several months after its most recent maintenance stoppage; once the increased needs of regular customers had been satisfied, there was little or nothing left to offer new clients. A five-week lead time now applied to a product that would ordinarily be available ex-stock, he said.
As normal, he added, the company would operate throughout the Christmas period; unlike normal, however, he did not expect this to provide the opportunity to build stocks to anything like the usual extent.
