The closure of Sonae’s Knowsley chipboard factory is credited, at least in part, with injecting more life into areas of the market. In particular, conditions for T&G and melamine-faced chipboard (MFC) are said to have improved for those suppliers who remain. In the case of MFC, price increases have been implemented recently in some quarters and more appear to be in the pipeline for early next year for a product which was described this week as "doing well".
Margin preservation and, most specifically, cost pressures have again been cited as leading drivers for increases. Even though the cost of chemicals has been more stable of late, timber prices have continued to edge higher, while chipboard producers are now confronted with the elevated winter rates for their energy.
Price increases are also likely for raw board in the early part of next year, TTJ was told, given that capacity closures on mainland Europe will create supply issues. One Continental supplier said his company’s availability of chipboard was already "extremely limited".
Closure anticipated On the surface, the closure of Sonae UK’s facility is perhaps the most significant development in domestic chipboard production for several years. However, confirmation of the closure with effect from September 14 could barely have been greeted with less surprise.
Rebuilding following the serious fire in June last year became mired in well-documented planning approval complexities at a time when the chipboard market itself was feeling the strain of the economic downturn. Indeed, the closure announcement from the Sonae group’s board of directors in Portugal made play of these "long delays to the reconstruction of the factory due to political and licensing difficulties, and the reduced and unsustainable capacity levels that have ensued".
Given that the demise of the operation "was not a quick process", the chipboard market largely anticipated this outcome and had "slowly adjusted" to the possibility of life without Knowsley’s volumes, a spokesperson for another domestic producer told TTJ. "A lot of its customers had started to make alternative arrangements a long time ago. There has been no lack of supply in the market." It had been some time, he added, since the Sonae plant had produced near its peak levels.
Nevertheless, certain pockets of the UK chipboard business have been impacted by the closure – and the repercussions could become more pronounced if sales were to pick up in these areas early in 2013, TTJ was told. Notably, the temperature in the T&G and MFC markets has increased a notch or two in recent weeks; in the case of T&G, one industry expert spoke of "a degree of shortage" emerging for certain flooring applications, adding that "there are certainly opportunities out there for local manufacturers".
One of these domestic producers confirmed that developments at Sonae have given "a boost" to other suppliers that goes beyond the norm.
The same producer pointed out that there has been an increase in MFC orders from the shopfitting, furniture and kitchen sectors – something which "would have been expected" in any case at this time of year.
By comparison, he added, the raw board market is "static", reflecting no major upturn in construction business. Given this scenario, his company plans to run throughout the Christmas and New Year period, but inventory will be monitored closely, he added. "I’m not prepared to have silly stocks," he said. "Stocks are OK at the moment, but that can change. It depends on how soon the Christmas period starts and how long it lasts."
Recycled wood supplies As reported in the immediate aftermath of the Sonae closure announcement, Peter Butt, executive director of the Wood Recyclers Association, hailed the news as "very bad" for suppliers of recycled wood.
Speaking more recently, he said that recyclers "had a lot of notice of this happening" and had therefore had "ample opportunity to seek out other markets" – albeit in "a very difficult period" for the sector in general, not least because of what he described as "the recession in the panel board market". Although the Sonae plant had once been a regular consumer of 1,200 tonnes of recycled wood per day, he had received no reports from his sector of "anybody going out of business as a result of this".
Mr Butt did identify one impact on the recycled wood market for which he deemed developments at Sonae UK to be responsible at least in part – the emergence of high stock levels, particularly in the south of the country. However, the level of expectation surrounding the Knowsley closure is indicated by the fact that recycled wood prices have not changed substantially in recent weeks.
Rather than "recession", Norbord has selected a different "r" word to describe the market. In its results for the third quarter of this year, the company terms the European panel markets as "resilient" despite "persistent economic uncertainty", reflected in the fact that chipboard prices were "consistent with the previous quarter". Compared to the same quarter last year, however, chipboard values fell 6%, the report notes. The UK housing market remains "stable", it adds.
Currency advantage The group’s results package once again celebrates the fact that, historically, the pound has traded in a range relative to the euro in recent years that has been advantageous to the group’s primarily UK-based operations "as it has improved sales opportunities within the UK, slowed the flow of Continental European imports and supported Norbord’s export programme into the Continent".
Figures from the Timber Trade Federation (TTF) covering the first eight months of this year reveal that UK exports of chipboard skyrocketed 45.6% to 113,000m3 from 77,000m3 in the corresponding period of 2011. Barring an anomalous September performance, therefore, UK exports in the first three quarters of 2012 will have easily outstripped the total for the whole of last year.
A domestic producer confirmed that his exports have shown stability at higher levels and are continuing to act as "a useful pressure valve" in the current market. In comparison to the past, more enquiries are continuing to filter through overall, he added, even though export interest can be somewhat patchier in nature than domestic orders.
Chipboard imports Turning to imports, the Sonae group has underlined its intention to continue supplying the UK market from its other plants throughout Europe following the Knowsley closure. But experts wonder to what extent the company will remain a significant presence in the UK market across the various grades it produced at the UK facility.
One contact predicted a continuing influence for Sonae in the MFC market, but less so in terms of, for example, technical flooring. "With some products, I doubt Sonae will be able to supply them viably from other group plants," he said. Another contact agreed that, for some product lines at least, the sums involved in shipping into the UK won’t really work out, adding "that’s why most other companies on the Continent stopped doing it".
The TTF statistics for January-August confirm that UK imports of chipboard slid 9.2% to 277,000m3 from 305,000m3 in the first eight months of last year. The share of the UK import market taken by Portugal dropped over the comparative periods from 9% to 5%, equating to a fall in actual volumes of around 50%.
A straw poll of contacts in the chipboard production and distribution sectors indicated that, for most, the volumes moved in 2012 have been broadly similar to those of 2011 but that margins have come under more intense pressure. In order terms, a stronger first half this year was followed by a wobble in quarter three and subsequently more stable conditions, several agreed. "But in reality," said one producer, "chipboard prices are just not high enough."
