Summary
¦ Chipboard producers have raised prices in response to cost increases.
¦ UK manufacturers plan to maintain production over the Christmas period.
¦ They expect to increase prices again in early January.
¦ UK demand has been stable.
¦ The European Panel Federation planned to hold an action day on October 29.
Chipboard price increases of up to 10% around the turn of the third quarter may appear to be more severe than normal from the buyers’ perspective, but such hikes are a true reflection of the intensifying production cost pressures being felt in the latter part of the year, say domestic producers.
At the same time, demand has remained sufficiently strong to enable UK chipboard facilities to be kept running at full tilt, with some operators already prepared to commit to churning out product throughout the approaching Christmas and New Year holiday.
As reported in the summer, the ever-heavier cost burden had prompted at least one chipboard producer to introduce price increases at a time of the year when such moves are quite rare and notoriously difficult to embed in the market. In addition, other producers signalled their intention to raise prices shortly after the summer holiday season.
January increases
In the event, one producer went for an average increase of 5% in September on raw board and melamine-faced chipboard (MFC) while another waited slightly longer before implementing increases of 8-10% on the same two products. Asked when the next round of increases could be expected to take place, producers were generally adamant that moves were unlikely to be any later than the early days of January. For example, a spokesperson for one UK producer said his company would be “going for the next increase from the New Year”, adding that this would probably be around 5%.
Meanwhile, representatives of at least a couple of Continental producers confirmed that further price increases would be imposed later in the fourth quarter, with one of them adding that another hike was planned for January despite the fact that, as he put it, demand on mainland Europe is “quite subdued”. He viewed UK producers’ intention to run throughout the Christmas/New Year period as “an optimistic stance to take”.
Not everyone is implementing increases in the late third quarter or fourth quarter; one of the UK’s leading chipboard producers has opted to make no price moves throughout the second half of this year. Having raised prices in June, a spokesperson said that the next hike (of around 6-8% on raw and MFC products) would be held back until the start of next year. “We’ve tried wherever we could to absorb costs – but we have absorbed as much as we can.”
Timber costs
A key cost is represented by timber, with one domestic chipboard producer pointing out that his own wood bill has increased by “more than 30% in the last 18 months”, not least because of competition from the biomass industry. He described current government policy as “misguided” in that the biomass industry “can pay three times as much for the wood as us, given the grants and other support they have”.
Concerns have become so acute that an Action Day has been organised by the European Panel Federation for October 29. Some European producers were intending to stop their plants as a gesture of protest while others were arranging meetings/events to publicise the impact of biomass subsidies on the panels industry. One producer contact said the “unfair” support available to power generators was “threatening our feedstock” and constituted an “environmental nonsense” given the ability of chipboard to lock in carbon.
Among the other cost headaches mentioned this week, one producer pointed to a 12-15% leap in resin costs in one month while several others estimated the urea cost increase at anything up to 35% over the last four months. As for melamine, a producer said that he was seeing cost increases of 15% a month at the moment as well as availability problems resulting from stockpiling and other technical issues. In addition, paper prices have been rising while the titanium oxide used in the whitening of papers is in short supply.
Transport
Several chipboard producers also highlighted the increasing pressure from transport costs “which make up a big percentage of the overall delivered product costs”, while one said his gas bill had remained high throughout the summer and was showing no signs of decreasing.
According to a domestic producer, recent and planned price increases are still insufficient to offset this escalation in total costs which, for raw board, he estimated at 10% between the third and fourth quarters of 2010 alone. His counterpart at another UK operation said that chipboard manufacturers must be assiduous in pushing through all of the mentioned price increases or risk putting their very survival in jeopardy. Having alluded to several plant closures on the Continent, he added: “The ability of some customers to resist the full scale of chipboard price increases will disappear. The increases have got to stick.”
Despite the implemented and proposed price increases in the UK, product values on this side of the Channel are still below those on the Continent; indeed, prices in mainland Europe “are rising faster than here” to create a differential of around 10%, according to the calculations of a leading UK producer. A fellow producer said the gap could be even wider.
Given this scenario, there has been a perhaps unsurprising continuation of the trend towards lower imports of chipboard into the UK: they totalled around 1.1 million m³ in 2009 but producers believe the figure will struggle to beat 400,000m³ this year, with one predicting a significantly lower sum. And of course, the price gap has also created “more potential to look at export opportunities in other parts of Europe”, as one domestic producer put it. Another said that his company had been approached by a number of buyers on the Continent with the aim of placing chipboard orders exceeding 1,000m³ in some instances – a situation he described as “unusual”.
Demand improves
Meanwhile, demand in the UK has also provided some encouragement over recent months. “We didn’t see the normal tail-off in the summer and the market has been quite buoyant up until the current date,” he said. Although the merchant sector had become “perhaps a bit quieter of late”, regular demand had been emerging from, notably, the furniture, shopfitting and hotel sectors, he said.
Another prominent producer figure reported that business levels during the summer were “above expectations” and that conditions were “still fine” in the autumn. “We are selling what we make,” he said. From his company’s perspective, “every month has been stronger than the previous month this year”. Meanwhile, “very good” and “certainly better than last year” is how a counterpart at another producer operation described chipboard sales during the summer, adding that demand is now “stable” in the autumn.
Producer lead times are extended in some instances, while stocks at Sonae UK’s Knowsley facility were forced lower recently by a week-long outage.
As mentioned earlier, the UK chipboard producers’ guarded optimism is reflected in the fact that many are already confirming plans to operate throughout the Christmas holidays. Staying with Sonae UK, TTJ was told this
week that full running over the holiday period would be designed to build stock ahead of the launch of a new product range at the start of next year.
But although demand in the UK is generally considered to be reasonable, housing remains a particular source of concern. The lack of any major signs of a recovery in the housebuilding sector has continued to dampen T&G flooring business, with Sonae UK confirming that “we are seeing 50% of the demand of 2007”.
