The UK’s insatiable demand for chipboard has continued through to the third quarter and the demand/supply imbalance has been so consistent and availability so difficult that one regular contact said there was little to say except for his three-sentence summary.
“There remains little availability as many manufacturers are focusing on decorative board rather than raw P2 and P3. There are continued shortages on P5 and the price has increased around 60% since February. Most manufacturers are working on allocation for P6,” he said.
A merchant confirmed that P5 was “extremely difficult” to procure and when it could be found, the price had “risen phenomenally”. Another merchant told TTJ that this year P5 prices had risen by between 50-116%, depending on the manufacturer.
As one contact said, the market has a very different feel from the norm. “We used to have summer deals to get product moving and now we have price increases, and not small increases,” he said.
Many customers are so desperate for product that they will take whatever they can get. One merchant said that customers who would normally buy a weather-protected board were taking standard P5 if that was all that was on offer.
“In a way that’s played against the added-value,” the merchant said.
For another merchant, the opposite was true. “P5 is the most challenged chipboard product so we’re finding customers will buy weather-protected if they can’t find P5,” he said.
The T&G board was so difficult to procure that it had become “the bane of my life”, he said.
Along with everyone else in the market, his company was on allocation but the volumes he was receiving were falling short of what he needed. “We’re not getting enough volume to fulfil our existing needs let alone for growth or to meet extra demand, so it’s a challenge,” he said.
In the main, this P5 shortfall is driven by demand from the busy housebuilding sector. According to the Construction Products Association’s construction industry summer forecast, housebuilding starts will rise by 20.9% this year and a further 9% in 2022. Meanwhile, the value of private housing output is predicted to rise 16% to £35.5bn this year and next year by 8% to £38.4bn – above the pre-pandemic output of £38.1bn. Taylor Wimpey recently reported a record first-half performance and it expects to complete between 13,200-14,000 homes this year.
So far the struggle to procure P5 does not seem to be impacting on build programmes but there is a possibility it could slow construction. The first floor installation is critical for the build process, and for health and safety.
“We’ve seen some people delay the start of projects, some postponing them until next year,” said a merchant. “Some have said they can’t afford a new extension because of the price of all building materials. It won’t halt building, but it could slow it.”
Now P5 is coming under pressure not just from demand, but also the short supply of melamine, used in the resin, which is affecting production. “It’s starting to impact on how much can be produced,” TTJ was told.
While chipboard manufacturers have focused a lot of attention on value-added decorative boards, this too is now becoming a juggling act as papers are in short supply. Lead times for some decorative papers are now into next year.
“At times we can’t produce specific décors or we have to be careful because we will run out of certain papers,” said one producer. “It’s difficult to accept orders ahead because I don’t know whether we will have the paper. It’s frustrating because demand is very good.”
These raw material supply issues, and a recent big hike in energy costs, mean manufacturers have continued with product price increases – and there may well be more, depending on raw material costs, a contact said.
The focus on value-added product lines has helped the buoyant kitchen and bathroom sectors but customers relying on P1 and P2 have struggled to secure product.
“The furniture industry is under duress,” one contact told TTJ. “They have to pay higher prices or use other products – MDF, OSB or plywood – which then puts pressure on those sheet materials.”
Chipboard supply is also affected by what one contact described as “minor Brexit issues” impacting on imports.
“Brexit doesn’t make it easier to import than before, it probably makes it a bit harder, therefore in the current market it’s one more reason not to bother and that has shortened availability of P5 in the UK,” he said.
That said, product is still arriving on UK shores and, unsurprisingly, volumes are up on 2020. According to the Timber Trade Federation’s (TTF) latest statistics, in the period from January to May this year imports were 21.2% higher than the same period in 2020. Germany, Belgium and Portugal accounted for the bulk of the increased volumes.
The value of imports has also risen – up 49% in the first five months of 2021, with an average price rise of 29%. The value of standard grades grew by 31%, while MFC and “other particleboard”, which includes decorative laminated board, each rose in value by 60%. The TTF says the value of decorative laminated chipboard increased by 150%, and the volume 120% during January to May this year.
On top of chipboard’s availability issues, the supply chain is also being frustrated by the UK’s well-publicised haulage shortage. The problem is largely the result of people not being able to sit their HGV driving tests because of the Covid pandemic and it’s been exacerbated by drivers being ‘pinged’ to self-isolate. European drivers returning home after Brexit has also reduced the number available.
The Road Haulage Association estimates the UK is short of 100,000 HGV drivers and it will take at least 18 months to train enough drivers to tackle the shortage. In late July some supermarkets were unable to offer certain milk brands because of delivery problems and Tesco offered a £1,000 joining bonus to entice drivers to join the chain. This may have helped Tesco but of course it couldn’t increase the available driver pool.
One merchant had waited 10 days for what was meant to be a next-day delivery of building products while another said it was difficult to find drivers for its own fleet. Collecting products from docks and distributing to branches was particularly challenging.
Another contact said he was “just getting by” with securing transport and he expected the situation to worsen in the autumn as post-lockdown life gets busier and the economy grows. There will also shortly be additional demand for lorries to transport Christmas goods.
All timber markets have been running red-hot since the first Covid lockdown last year and there are mixed views on how long this situation will be sustained. In a Market Statement published in July, the Confederation of Timber Industries and Swedish Wood forecast that the demand/ supply balance would reach a “major bottleneck in Q3”, but there was change in the foreseeable future.
“We believe the current position will change and there is optimism that the current extremes will abate in the not-too-distant future, returning us to a more recognisable demand and supply balance,” the report said.
Among TTJ’s contacts there were mixed opinions as to what may happen in the chipboard market over the next few months. Some agreed that the throttle might ease off a timber and panel products market that’s been operating at a blistering pace, but that’s not to say it will drop off a cliff.
“I think we saw peak wood in July,” said a merchant. “It’s not going to crumble, there’s far too much demand for that, but it will fall back a bit.”
With Covid restrictions being relaxed throughout the UK and travel now possible again, many people may decide they’ve invested enough of their disposable income in home improvements and instead would prefer to spend money on their newly reinstated freedom.
Added to that are the approaching winter months when there is usually a seasonal dip in demand. If this were to happen, the fear is that some traders, seeing demand come off slightly, will overreact and start dropping prices too quickly. One contact said there were already instances of chipboard being sold below its replacement cost, although he put this down to ignorance of the market price rather than deliberate price-cutting.
Others, however, believe the current level of demand will continue.
“We don’t see any change on the horizon,” said one contact. “We’re in the middle of the holiday season and demand is way above normal and in autumn there is traditionally even more demand. Chipboard is sold out and there will be no change well into next year.”
Another contact predicted that the supply issues surrounding chipboard raw materials would affect finished product availability well into next year.
When everything from raw materials to transport is under pressure and with Covid continuing to affect our lives, it makes forecasting even more difficult than usual. Traders are confident demand for chipboard will remain strong but other factors will have an influence.
One contact summed up it as “dancing through various holes in supply”. “And I don’t see the end of it, whether it’s melamine, decorative paper or transport,” he said. “Nothing is safe at the moment, nothing is secure.”
