Rising demand spanning virtually all product areas; examples of record producer sales revenues during the normally quieter summer months; substantial but not-unexpected price hikes to begin the autumn; and high levels of optimism for the remainder of the year. To borrow the words of Chancellor George Osborne, the UK chipboard market certainly seems to be "turning a corner" and laying down the foundations for "a balanced, broad-based and sustainable recovery".
The recent turnaround in the market has been so great that, according to one prominent industry figure, a "tipping point" has been reached whereby demand is now outstripping supply "perhaps for the first time since 2007". In response, producers are already understood to be considering options to maximise their outputs through the optimisation of both existing equipment and product mixes. According to a spokesperson for an operation yet to take its annual maintenance, the hope was that this process would deliver an increase in production to help meet the higher levels of demand.
There was talk this week of supply coming under pressure in certain cases, notably P2 and also T&G – to the extent that lead times have become extended and that one overseas supplier was claiming "a bit of a shortage" of the former in the UK; he said his own business had seen an upturn in enquiries from this market "because of the lead times quoted by local manufacturers".
Domestic producers were more circumspect in their language, acknowledging "tightness" and a "shortening" of supply while expressing no major concerns over lead times at present. Established customers with regular requirements would not be left short of material, TTJ was told, whereas requests for significant additional volume or the "more opportunistic" enquiries from the market might not be so easily satisfied.
As for the latest round of chipboard price increases introduced at the start of September, contacts for domestic producer operations confirmed this week that the hikes had ranged from 3% to the dizzying heights of 10% in certain instances, and that all the major product segments had been affected.
The scale of these increases clearly owed much to the strength of UK chipboard demand throughout the heart of the summer period and into the early autumn. One producer said that July and August – traditionally a slower time for demand owing to the fact that many customers take summer holidays – had been "our best two months ever" for sales revenues. While the looming September price increase could explain some of this upturn in summer business, he added, order files had remained robust even the importance of what one described as "a far more buoyant construction market", helped by government support initiatives and "catch-up" demand following the difficult weather conditions earlier in the year. However, one was quick to add that demand from this sector was still "far away" from pre-recession levels.
Optimism and confidence At the same time, producers pointed to "general optimism" spanning most chipboard consumption sectors. "People in most areas appear to be busy," said one. Another commented: "You can feel with most of your customers that they are more confident." This revival, he added, had begun to emerge just before this year’s mid-point.
However, demand has not been solely responsible for the decision to move chipboard prices higher. This week, producers were also pointing by way of justification to rising costs, with one identifying increases of 11% for electricity, 19% for gas, 25% for methanol and 35% for melamine when comparing August 2013 with the same month last year. Only urea was lower in cost on the same year-on-year basis, he added. His counterpart at another production operation highlighted the rising costs of timber, chemicals and transport before adding that the latest chipboard price hike "has allowed us to catch up with some of the cost increases of the last two or three years, which we’ve not been able to pass on".
So how does the loss of Sonae UK figure in all of this analysis? The impact of the closure of the Knowsley operation a year ago is difficult to quantify given that it was not producing near to full capacity at the time of its closure. However, Sonae’s subsequent efforts to maintain a strong presence in the UK market are clearly visible in the latest statistics from the Timber Trade Federation (TTF): the fact that France is level-pegging with Germany, with 29% of the UK market this year, is attributed largely to supply from within the Sonae group.
The TTF stats reveal that total UK imports of chipboard soared 31.1% in January-June this year to 276,000m³, with year-on-year gains reported for each of the first five months of 2013. According to UK producers, this surge in incoming volumes reflects the relative weakness of chipboard demand on the Continent and the burgeoning opportunities on this side of the Channel, especially given the reduction in capacity brought resulting from the Knowsley closure. They also insist that they are not losing valuable business to imports and that the incoming quantities will continue to be capped by the associated transport costs. According to one UK chipboard manufacturer, much of this import activity represents "a short-term opportunity for Continental producers to maintain their production volumes" and "cannot be sustained".
Comments contained in the latest results packages from some leading Continental producers underline the fact that many other markets in Europe are not faring so well as the UK. For example, Sonae Industria’s CEO Rui Correia confirmed ongoing "adverse trading conditions" in most of the regions where his group was active during the second quarter of this year, with the austerity measures implemented in most countries "negatively impacting consumer demand and capital expenditure". The group anticipates "a relatively stable trading environment" during the second half of the year in most European markets, with a continuation of the general trends seen earlier in 2013.
Exports fall Returning to the figures from the TTF, these also confirm that UK chipboard exports plummeted almost 61.7% to just 35,000m³ in the first half of this year – a reflection of the growing strength of the domestic market and of the fact that overseas shipments had acted as a useful pressure release valve when demand at home was more sluggish.
So does the current strength of the UK market create scope for further price increases before 2013 is through? One domestic producer described the upward move in September as "probably" the last of the year but added: "You never know – I’m not ruling it out."
Another producer was more open to the possibility of further increases this year, but only for "the more commodity-based items" such as P2 and standard flooring.
There is certainly market confidence in abundance at present, with one producer putting it thus: "From all we are hearing, we anticipate that it will remain strong for the rest of the year and continue through into 2014."
Another added: "Clearly some kind of motor has started to run and there is now a different quality to the market – a sense that this momentum is sustainable." Producer expectations are of "periods of tightness" in the market and of no scope whatsoever for bargains.
