The UK chipboard sector has welcomed the steady upward progress in prices this year and is preparing for more increases in early 2005 as producers attempt to pass on rising costs.
“There is no way particleboard prices won’t continue to go up,” said one industry figure. “There will be further double-digit price increases soon after the new year.”
He backed up this view by listing positive fundamentals underpinning the chipboard market, including “a shortage of raw board throughout Europe” and a supply tightness brought about to a large extent by the removal of significant capacity from the European market over recent years.
“2004 has been a year of good volumes but prices haven’t gone far enough in recovery terms,” he said.
Passing on costs
Domestic producers seem able to talk in terms of achieving breakeven or of making a small profit on their chipboard activities, but return on investment is still regarded as insufficient.
Price increases introduced in October and November were between 5-7% for the majority of chipboard products, including raw board, T&G and flooring. And several leading players say they are reviewing prices of most products on a monthly basis.
On the other side of the equation, however, increases in raw material and energy costs have already been substantial and this pressure is not expected to diminish in the near term. According to one producer, the costs of urea, melamine and methanol have risen sharply during the course of this year, while the company’s electricity bill is set to increase by 51% in 2005. “We can’t be expected to stomach these increases on our own,” he said.
Price resistance
Some buyers have attempted to resist these higher chipboard price levels but, according to producers, they have little option but to accept the direction of the market.
“Even if our costs hadn’t increased, we would still have introduced price increases due to strength of demand and tightness of supply,” said a producer. “Chipboard has been making losses for years and now we are seeing some value returning, but it would have been a lot better without the extra costs.”
Reflecting the strength of demand, producers are reporting delivery times of at least two weeks and up to eight weeks in certain instances. Most companies in the sector appear to have enjoyed a decent flow of business over recent months although some are expecting activity levels to fall in December compared to last year. “This means we might see the odd parcel traded more competitively,” said one company.
Furniture demand
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“Chipboard has been making losses for years and now we are seeing some more value returning to the sector. It would have been a lot better without the extra costs – but even without them we would still have increased prices due to strength of demand and tightness of supply” |
Recent order levels from the furniture trade were described this week as ranging from “crazy” to “disappointing”, although most customers in this sector are understood to be having difficulty in passing on their higher chipboard costs to the retailers. Also, product availability has been an issue for furniture industry buyers because mills are being more selective about what they produce and are preferring to focus on what will bring them maximum returns.
The flooring market appears to have maintained a decent momentum while one contact suggested that demand from the construction industry for thick board “has never been so good”. As for melamine-faced chipboard, several contacts suggested that the market is coming under pressure from an increase in imports and that, as a result, any price increases in the new year are unlikely to match those of other chipboard products. According to one company, rising imports could be seen as an indication that the Continental market for this product is not too busy, but another source said freight costs are still making it unviable for many European producers to ship to the UK.
Continental producers are also understood to be very busy and are generally unwilling to accept orders unless their price demands are met. “We are selling almost no raw board in the UK because we can get better prices elsewhere,” commented one source, adding that his company was experiencing healthy order levels in eastern Europe and the Far East.
The strength of the market was reflected at the General Assembly of the European Panel Federation (EPF) held earlier this month in Brussels. Describing the particleboard industry as “soaring in top gear”, the organisation noted that demand had accelerated “remarkably” during the first six months of 2004. Favourable market opportunities had also provided scope for a further downward stock movement.
European growth
A 6.2% increase in output during the first quarter of 2004 was followed by 8.6% growth in the second quarter, with EPF member countries achieving their highest quarterly production volume of more than 7.7 million m3. Taking the first half of the year as a whole, particleboard production increased by 7.4% compared to the corresponding period of 2003, while demand grew by nearly 9% and exports by an average of 14%. EPF added: “With the third and fourth quarters of 2004 being the key indicators of the strength of the recovery, the further upward trends in the production output and demand levels during the summer holidays nourished optimism for enhanced year-end results in the particleboard industry ranging between 5-7%.”
In common with the UK chipboard sector, EPF members also expressed concern about the sharp increase in costs, in particular resin and energy prices.
Of course, the renewed vigour in the chipboard market has also been fuelled by supply issues. As mentioned above, recent years have seen a number of production lines taken out of service and further closures cannot be ruled out. In addition, very little new capacity has been introduced and no major new projects are on the drawing board. Even if a project was announced tomorrow, it would take years r to bring it to fruition.
In the UK, producers appear to be focusing on developments that will extract additional output from their existing set-up: Sonae, for example, is undertaking a “de-bottlenecking” exercise that will increase throughput at its Knowsley facility by 10-15%. In projects set to start in January and due for completion in June next year, the company is spending around £5m on new cleaning equipment and a further £1m on an environmental upgrade programme. Kronospan, meanwhile, spoke this week of “a series of projects” to increase capacity at its Chirk plant, although it stressed hat the imminent installation of a £6m SEKA filter in place of a Hydroair chipboard system would have “little or no impact” on production levels.
“It will just mean one dryer instead of two for a few days,” the company said. “Customers won’t see a difference.”
Optimistic forecast
Most contacts in the UK chipboard sector are being upbeat in their assessments of 2004 and predictions for 2005. One producer said: “There has been a remarkable change in business conditions, and a welcome one. I can’t see any change in the pattern.” Another agreed: “I can’t see any let-up and can only see further price increases in 2005.”
On a more cautious note, however, concern was expressed this week about the seemingly unending rise in energy and raw material costs, and about whether any “over-heating” in chipboard prices would provide overseas suppliers with an opportunity to “swamp” the UK market with imports.
