For the chipboard market, the last year or so has been particularly eventful. From Brexit to supply and demand concerns, rising raw material costs to forest fires, the market has had its challenges. However, demand has remained strong with a cooling only being experienced in recent weeks, as would be expected as the summer draws to an end.
However, Brexit looms large on the horizon and its presence is being felt across the industry. Earlier this year, TTJ reported on comments made by the Timber Trade Federation’s (TTF) managing director, David Hopkins. He told a meeting of traders the government was beginning to engage with the sector and questions were being asked.
Despite his appetite for a conversation and the indications things were moving forward, by May it was clear concerns over the impact of Brexit appeared to be growing.
He warned of supply issues, partly the result of new border checks, saying: ‘“Some 90% of timber used in construction is imported from Europe.” His biggest concern at the time, however, was the proposed Taxation Bill. “Once the UK leaves the EU and its VAT area, VAT on EU imports will have to be paid upfront.
This will cause considerable problems for the SMEs who make up the majority of our sector.” (See p8)
Supply is already an issue in the chipboard sector, particularly since late 2017 after forest fires forced the closure of two Sonae factories in Portugal at a time of strong demand.
According to figures from the TTF, Italy stepped in to fill the gap, more than doubling its supply of unworked chipboard and MFCfaced varieties to the UK. The Federation said the country had increased its level of supply to 5% of market share, up from 2% in the same period in 2017.
Demand among UK customers remained through 2018 but there are indications it may now be easing. “They [manufacturers] believe demand will ease entering Q4,” one merchant told us. Another said: “We seem to be finding that availability is good, so factory/mill stocks will be good, possibly heading towards oversupply.” Exports of chipboard to Europe soared in 2017, up more than 61% in the first half of the year. That figure fell back more than 7% in the same period this year.
However, whilst supply has eased, price hikes could be with us for some time, say many of those we spoke to. One merchant said it had observed “a Q3 price increase of 5%, following a similar increase in Q2.” Another confirmed that saying: “The significant price increases of 20% since last year do seem to have stuck, and whilst availability has come back into line there are no signs of any price erosion any time soon.”
However, a merchant specialising in flooring grade chipboard said it felt like the era of price increases was coming to an end.
“Last year saw some fairly significant price increases and also some shortages. This continued into the early part of the year, but as time moved on the appetite for price increases declined. More volume seems to be available and I suspect inventories at the mills are increasing… I would think that we will not see any further price increases unless some outside force intervenes. They might even decrease.” Another said prices had stabilised with further rises “unlikely”.
Others, however, were not so sure. “Due to ongoing cost pressures on raw materials such as wood and glue, and now rising energy costs, the market has been advised of further price increases this autumn,” one manufacturer said, adding it had already seen cost rises of between 10% and 25% on raw materials and energy. Fuel costs are also impacting, pushing transport costs up by around 4%.
Another producer agreed, saying costs were already going up, with the impact of currency fluctuations continuing to have a “major impact” for UK operations. “A weak pound obviously affects us as a European importer.”
For British manufacturers with the ability to export, however, the difficulty sterling is having in the run-up to Brexit could be beneficial. One merchant said: “I suspect this [currency climate] is tempting for manufacturers and it would not surprise me if some of their volume is being exported,” although a manufacturer suggested this isn’t the case due to the lack of capacity hampering exporting capabilities.
Calling the summer “unprecedented”, a distributor said demand had been mixed, with slower retail activity, while demand from the construction industry remained “strong” as it looked to catch up on a slow start to the year.
However, that wouldn’t continue said another distributor. “Demand is still reasonable but flatlining, at best. We are nearing the end of the best weather phase and with fewer daylight hours, site working times will decrease.”
MORE FRUITFUL SECTORS
Could other sectors prove more fruitful? “The merchant sector is fairly buoyant and the furniture industry is coming back from the summer period with fairly strong order books (July was slower than previous months but in line with the same month last year),” one merchant said.
“Demand is generally good across the board, with the merchant/DIY sector probably just being the leader in our experience,” he continued. “In the furniture sector, a couple of larger contracts for domestic retailers have changed hands but as far as we are aware these contracts have remained within the UK, so demand should not be affected.”
Like many others, the chipboard sector cannot escape the shadow of Brexit. A distributor cautioned the UK is “unlikely to see any significant increase in demand and is more weighted towards a decline. Given economic/Brexit uncertainties and a housing market that is not especially buoyant, flatline might be about as good as it gets”.
“Our approach to the raw chipboard market is opportunistic,” added an importer. “We sell when market prices allow us to be profitable and we pull out of the market when conditions are not favourable. Having said this, we see demand for raw chipboard getting slightly weaker. Most of this year demand has been strong but we are probably at the initial stage of a downward trend.”
Although more significant earlier this year, issues surrounding long lead times are still present, albeit much reduced.
“Problems acquiring raw material have compounded production, which has led to extended lead times,” a distributor said. However, the general feeling was that lead times were normalising for now. That may be threatened by a depleted stock according to some of those we spoke to. “Stock levels are lower than usual for this time of the year,” said a manufacturer. His view was supported by a merchant who said: “It is my understanding manufacturers’ stocks have been depleted as whatever they produce is being delivered as soon as possible.”
This was reflected in production levels with many reporting steady or increasing activity. “If the raw material is available then manufacturers are increasing production. Some have made efficiencies, others have increased shifts,” said one merchant.
A manufacturer confirmed this saying it had maintained maximum capacity in recent months, across all processes. That is not across the board though. Another manufacturer said he was not planning to increase his volume in raw chipboard in the UK. “Based on our approach to the market, if demand is strong and prices are ok, we will continue to supply,” he said. “If not, we will pull out or focus on specialities – thin, thick, moisture resistant, fire retardant and so on.”
Perhaps reflecting where the UK is both economically and politically, the current picture is mixed. Demand remains relatively strong despite uncertainties – largely the result of the UK’s departure from the EU. Supply is improving too but prices remain inflated, with the possibility of more to come.
One answer is for investment, however, said a manufacturer. “If some of the projected investments are carried out, there would be more product available and chances are prices would fall. It is not ‘normal’ to sell chipboard at MDF-like prices.”
