Further price erosion has made for a deflating start to 2003 for the UK chipboard sector. The consensus is that there is little in the market to push in the direction of higher prices, although one operator did say: “The war risk could be a good excuse for some people to put prices up.”

To make matters worse, many leading consumers are either reining in their purchases or, in some instances, are having to contend with major financial problems. A leading UK chipboard figure pointed to the recent announcement that flat pack furniture manufacturer Home-PAC was being placed in administration as a reflection of the difficulties suffered in many of the major chipboard-consuming sectors. “It also contributes to the pressure on manufacturers to find new business,” he said.

Adopting a more upbeat tone, furniture group MFI reported in late February that post-Christmas consumer spending in its stores was “in shape”, but went on to acknowledge that economic and political uncertainty was not helping the company.

Lead times shorten

Manufacturers’ eagerness to capture business has prompted some end users to note that chipboard supplies are generally deliverable “within the working week”. One supplier did say, however, that his own lead times were out to an unusually long three weeks owing to a decent order book, although he went on: “We are trying to give the impression to our customers that we are busy in the forlorn hope that they will pay more!”

A view widely expressed this week was that “nobody in the chipboard chain is making any money at the moment”. One experienced operator claimed: “I have never seen it so bad in the board sector – low levels of activity, low profitability and a general nervousness in the market. I think there will be casualties this year across all the sectors.”

He went on to suggest that a reduction in UK capacity – “either voluntary or otherwise” – was likely and was also desperately needed to rejuvenate chipboard’s prospects. This comment was made shortly before confirmation was received that Vertex Panel Products of Shildon was entering administrative receivership only a matter of weeks after securing a £4m funding deal.

While a number of industry contacts regretted Vertex’s troubles, many were quick to point out that the market might benefit in the longer term. One source observed that, should no buyer be found for Vertex, “this would release volume that could be absorbed by others and we could finally see some price increases”.

Turning to actual market conditions, “limp” early-year demand has been reported both for raw board and for melamine-faced material. Taking 1mm 8×4 merchant grade as his example, one chipboard trader suggested that some operators had dropped their prices by as much as 7-8% but that furniture grade material had been more stable. Price drops of around 3-4% were indicated in several quarters for MFC.

Flooring material

Some suppliers of flooring grade material were slightly more upbeat, suggesting that demand had been reasonably encouraging during recent weeks, although they emphasised that “prices are still a long way from where they need to be”. Some mills are understood to have dropped their prices on basic T&G flooring by 4-5%, although several contacts reported fairly wide variations between the prices on offer. One observed: “There are some big differences between the top end and the bottom end of the market. But that’s OK because there is quite a bit of brand loyalty in T&G chipboard flooring – if it was based purely on price, we would never have any business.”

&#8220I have never seen it so bad in the board sector – low levels of activity, low profitability and a general nervousness in the market. I think there will be casualties this year across all the sectors”

Not everyone was equally bullish about flooring prospects, with one contact arguing that competition and prices were too strong for his own company to consider tackling the market. A leading manufacturer said historically-low UK house build figures should offer little comfort to flooring suppliers, before adding that furniture grade and worktop demand was “a disaster”. Another contact pointed out that the competitive position of the UK furniture industry continued to be undermined by cheap imports, most notably from the Far East.

One of the leading UK producers suggested this week that the industry “has reached the bottom of the barrel where prices are concerned”. A senior spokesperson explained: “I am not reducing my prices. We are not looking to make a fortune but when you get into negative cash flow, it really isn’t worth doing the business.”

Another leading UK manufacturer echoed similar sentiments. He confirmed that, following a period of price weakness, his company was planning to increase prices on certain items of standard and furniture grade chipboard by as much as 8%. He stressed that the increases, due to come into effect from the middle of March, would be implemented only on selected items. He also underlined that these proposed price increases were in no way a response to improved levels of demand, but were rather a strategic reaction to recent market developments. “We have no option – we need to balance the books,” he said.

Cheap imports

The same producer went on to explain that demand was generally weak and yet all producers seemed prepared to “fight their own corner”. UK chipboard capacity was sufficient to meet current domestic demand but cheap imports were responsible for weighting the market balance heavily in favour of supply. Mills on the near Continent had been particularly active in the UK of late – not least because of the generally poor levels of demand in their own countries, he added. Meanwhile, a company bringing in chipboard from the Baltics reported continuing shipping problems as a result of ice. He explained: “It is difficult to get the ice surcharge of £2 per m3 accepted by customers. But in terms of supply, we have had no trouble in getting what the UK market has needed because the volumes required have been quite low.”

Weaker pound

Another operator noted that, with the more recent drop in the value of the pound, “imports should be stemmed a little”. If this were to happen, “it would make us more hopeful of a stronger market”, he said.

In brighter company news, a spokesperson for the Sonae operation at Knowsley maintained that, following a recent business review, production was now achieving budgeted levels. The company was focusing on achieving the right product mix – importantly to include value-added products – and on differentiating itself from the competition, he said.

Another company was pleased to report that it had succeeded in introducing a 2.5% increase within the last few weeks on its peel-off decking product. At the same time, however, the firm admitted that it had exercised restraint given the current state of the overall market and would have preferred an additional 5% increase.

That said, a spokesperson acknowledged that nearly all other areas of the market were either stagnant or softening and that pressure within the market place was likely to grow further if rising oil prices pushed up raw material costs in the near term. Flooring demand had been reasonable since the second half of January, to the extent that his company was “sold out for the moment”. However, many distributors still appeared to be willing “to operate on smaller margins”, he said.