Chipboard demand better than feared

It’s often said that pessimists are never disappointed: they fear the worst and are pleasantly surprised when things turn out better than expected – and that’s the scenario currently playing out in the UK chipboard sector.

That’s not to say that those in the chipboard supply chain are gloom-mongers but, given the dire economic predictions and warnings made in the second half of last year, trading is better than many feared, especially for those that have a customer base beyond housebuilding.

“There are more reasons to be cheerful now than there were in November/December last year,” one merchant told TTJ. He said he was busier than anticipated and January sales value and volumes across all product lines were higher than in January 2022.

UK chipboard manufacturers have also been pleasantly surprised by trading so far this year.

“I was expecting December to be slow, but it was normal, and I feared people would destock in January but demand continued,” said one producer. “I thought Q1 would be bad and the rest of the year worse but I’ve started to revise that.”

Another producer said that although P5 sales were stronger than anticipated, his company was bracing itself for the tougher times ahead reported by housebuilders.

“The numbers for P5 are not great but they’re at the top end of expectations. Most housebuilders are talking about demand down 10-15%, some 20%, but so far we’re doing a little better than that,” he said.

Another producer said demand for P2 was “alright” and there was less product coming from Europe to compete with UK production.

Sales of worktops were steady but MFC demand was down slightly.

“It’s a very mixed picture,” he said.

“There’s no clear trend in kitchens, with some suppliers doing well and some not.”

Another manufacturer said demand for decorative board had been “surprisingly robust” and the year started better than expected.

He did warn, however, that many industries that use decorative board, such as retail and hospitality, are particularly vulnerable to changes in economic winds and consumer spending.

He added that demand for chipboard from the office furniture market had been impacted by people working from home during the Covid pandemic. Now, however, many companies are encouraging staff to return to the office and have been reformatting office spaces to make them more attractive so this could be reflected in chipboard sales.

As expected in a quieter market, there has been some softening of prices for all chipboard grades and they may dip further.

“Prices are all over the place so it’s difficult to give a clear indication,” said one producer. “We have retained a lot of business by not reducing prices to provide security of supply following the uncertainties of the previous few years and potential uncertainties for the year ahead.”

Another producer said that, in general, prices were steady after some small reductions last autumn.

At the same time, manufacturers’ costs remain higher than a year ago, although some have levelled off.

“Energy prices have come down but they’re still five times higher. We used to pay 11p per therm, now it’s 50-60p and that’s probably what we have to live with,” said one producer.

Chemical prices have stabilised too. It is recycled timber supply causing the biggest concern for manufacturers. Weaker retail and construction activity means fewer pallets available for recycling and, as reported in previous market updates, in Europe yearround demand for biomass to reduce reliance on gas and the loss of roundwood supply from Ukraine, Russia and Belarus is putting pressure on availability and raising prices.

“Timber prices are accelerating and what’s happening in Europe is now impacting on the UK,” said a manufacturer.

He added that labour costs had also risen.

“It’s a high cost environment,” he said. “We hope for some stability on price but there is certainly no scope to offer any dramatic discounts in the market.”

Throughout the supply chain companies are keeping stocks low in order to reduce working capital and be prepared for what may be around the corner.

In its financial half-year statement in January, Egger Group said there had been a “noticeable drop in demand” and predicted the overall economic outlook would be uncertain in the coming months and strongly influenced by the challenges in the energy and raw materials markets.

The company reported a 26.1% fall in earnings, spread across all divisions.

The housebuilding sector is certainly preparing for a tougher period ahead. In February, the Home Builders Federation warned that later this decade annual new housing completions in England could slump to their lowest since the second world war because of higher interest rates and a change in government policy that allows local authorities to scale back or reject developments.

The UK’s three largest housebuilders – Persimmon, Taylor Wimpey and Barratt Developments – have all said they’re cutting back on new projects because of economic uncertainty.

In Persimmon’s 2022 results, published on March 1, group chief executive Dean Finch said that although the fundamentals underpinning demand for new homes remained, completions would be down markedly this year.

Taylor Wimpey is also striking a cautious tone. In a trading update in January, CEO Jennie Daly said sales had reduced as mortgage rates had risen and “we enter 2023 with a lower private order book than in recent years and we expect overall volumes to reduce in 2023”.

Commenting on Barratt Development’s interim results, chief executive David Thomas said that while there were some early signs of improvement in trading during January, “we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing”.

One merchant had similar cautious optimism, hoping the worst might be behind us as some analysts believe the Bank of England will not raise the interest rate as high as 5.5% predicted last year.

“The mortgage market was pricing in future gains in interest rates but they now think they won’t happen so mortgage rates are starting to come down below that trend. That means confidence is starting to come back into the housing market,” he said, adding that he expected that confidence to be apparent in Q2 and Q3.

“The underlying demand for housing has never been any different – it’s massive. It’s all about affordability and confidence,” he said.

He also expected the new build market would strengthen in Q3 and Q4 as the government would start making positive statements as it geared up for next year’s general election.

A producer, however, had a very different view, predicting tougher times in the second half for P5.

“Housebuilding started slowing in Q4 last year and now sites are moving to build to order, rather than speculative build. Mortgage approvals have slowed and that’s going to work its way through the system,” he said.

Another producer was prepared for market changes, but wasn’t anticipating a “big dive”.

There are many factors, however, that could unsettle trading. In February it was announced the UK had narrowly avoided a recession in Q4 last year, although it had contracted by 0.5% in December, and on March 6 it seemed this position might be held as the S&P Global/Cips UK construction purchasing managers’ index revealed the fastest growth for nine months. The index, which measures monthly changes in total industry activity, registered 54.6 in February, up from 48.4 in January.

On March 10 there was even better news with the announcement that in January the economy grew by 0.3%, although analysts cautioned against popping champagne corks just yet. The economy is still on shaky ground and consumers are still grappling with the rising cost of goods, energy and mortgages.

As TTJ was going to press, the Bank of England Monetary Policy Committee was due to meet on March 23 to discuss another interest rate rise, so the ongoing economic climate, along with the war in Ukraine, and the risk that China may give its support to Russia, provides a backdrop of uncertainty for business. But despite this, the unexpected level of demand in Q1 is giving chipboard traders some optimism.

“If you weigh up everything, providing the war in Ukraine is contained at the existing level or less, I’d say we’re in pretty good shape,” a merchant said hopefully.

“I think we’ll have a reasonable year and I don’t think we’re alone in that. Generally, merchants should be saying things aren’t too bad,” he said.

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IMPORTS FALL 7.1% IN 2022

The latest statistics from Timber Development UK (TDUK), for January to December 2022, reveal that chipboard imports were down 7.1%, or 50,000m3, on 2021.

The value of imports was higher as a result of the decline in volume coupled with a 35% increase in the average price of chipboard products. The 25% overall growth in value comprised a 12% rise in the value of standard (unworked) chipboard, a 14% rise in MFC and a 54% increase in the value of bagasse/other assorted products including waferboard.

TDUK said the striking feature in the supply of chipboard imports in 2022 was the rise in the volumes and share of supply by France and to a lesser extent, Spain. France assumed the position of the leading supplying country from Germany with a 50,000m3 increase in volume. This contrasts with a 70,000m3 decrease in supply from Germany.

It should be noted, however, that a good proportion of the 36,000m3 supplied from the Netherlands originated in Germany. There was a 28,000m3 decline in imports from Belgium and a 17,000m3 drop in volume from Portugal.

Import volumes of particleboards in the month of December 2022 were at similar levels as in December 2021 at around 46,000m3. Following the cumulative pattern for 2022, volume from France was higher and lower from Germany in the month.

Unlike the cumulative pattern, however, volumes from Portugal and Belgium were higher in December 2022 but imports from Spain were lower.