Summary
¦ Chipboard prices are increasing again in response to rising costs.
¦ The severe winter weather has impacted on timber supplies.
¦ Sales of MFC have been strong.
¦ There are few imports coming into the UK.
¦ Most producers are expecting some growth in 2011.
Chipboard buyers have returned from the festive break to news that larger-than-normal price increases are being sought by domestic producers.
One manufacturer is raising its raw board prices by between 10-15% this month, while its melamine-faced chipboard (MFC) will be subject to an increase of approaching 10%; its previous increases, introduced around the start of the fourth quarter of 2010, amounted to nearer 3-5%.
And another UK chipboard manufacturer has identified the start of February as the launch point for 6-10% price increases on its distribution market sales; as for the same company’s direct customers, similar increases will be implemented mainly as individuals’ contracts come up for renewal. These latest hikes will follow increases of 5-6% last autumn.
A leading supplier of non-commodity chipboard products into the UK market confirmed that his company would be following up its 5% increase of October last year with a hike of similar scale to kick off the new year. “I can see prices going up again at the start of the second quarter,” he said. Other producer contacts refused to be drawn on the timing of future price increases, with one simply commenting: “It will depend on cost developments.”
According to producers, customers have responded to the latest price hike announcements without surprise and with a liberal measure of understanding. However, some have been surprised by the scale of the increases on the table, said one producer. Asked whether he expected these hikes to be accepted by the market, he replied: “I don’t know – but I have no choice. We have got to get this price. We have tried ‘little and often’ but we need a bigger chunk of an increase now.” For their part, some distributors have already made clear that they are anticipating a battle to pass on increases of this magnitude.
In mitigation, one producer said that no portion of this latest price increase would filter down to the company’s bottom line. Rather, the increases are a reflection of the cost escalation suffered by chipboard manufacturers in the fourth quarter of 2010 and even in the early days of 2011. And by the time these new increases are assimilated by the market, “costs will have moved on again”, he said.
Soaring energy costs
According to his own calculations, the company’s gas and electricity costs have soared by around 60% and 45% respectively year on year. On the same basis, its timber bill has climbed 25% while the costs of methanol (+34%), urea (+38%) and melamine (+45%) have also spiralled significantly higher. An intensification of the cost pressure around the turn of the year influenced the scale of the price hikes, he added.
Another of the domestic chipboard producers offered a similarly stark review of his own cost burden: methanol and melamine had risen by, in turn, 15% and 10-12% in the fourth quarter alone, while urea’s steady price increase owed much to a tightening of supply linked to demand from the fertiliser sector, he said. Transport costs have also risen sharply, he added.
Taking the last 12 months as a whole, the same senior producer spokesperson added that the company’s timber costs have jumped by between 30-35%; meanwhile, supplies became tighter during December as the severe winter weather presented problems in extracting wood from the forests. According to another leading domestic producer, the company’s deliberate bid to build timber stocks during 2010 successfully avoided a repeat of the supply problems created by the severe winter in late 2009/early 2010.
Wood supply
With wood supply continuing to struggle to match demand, a spokesperson for an overseas chipboard producer suggested that, in 2011, the raw material-related production interruptions experienced widely on the Continent could become more commonplace in the UK.
Staying with the theme of timber supply, the Action Day organised by the European Panel Federation in late October 2010 had clarified the impact of biomass subsidies on raw material prices and availability for long-established board producers, according to a senior UK chipboard industry figure. While acknowledging the strong argument in favour of biomass development, he said that the UK government should be focusing its support on the most efficient of these operations which offer combined heat and power.
In overall market terms, domestic chipboard producers will have derived encouragement from the decent levels of demand experienced in the fourth quarter of 2010; the fact that this momentum was more than maintained in the early weeks of January is widely seen as a sign of customers looking to beat the introduction of the above-mentioned price increases. Orders for MFC have been described as particularly robust, while furniture grades have also performed well – possibly in part because consumers looked to place their orders ahead of the 2.5% VAT increase. The T&G market has been steadier by comparison, not least because of the impact of December’s prolonged cold snap on the construction industry.
Even though most domestic producers continued to run their plants through the Christmas and New Year holiday period, order files have been sufficient to ensure no excessive build-up of stocks, TTJ was told this week.
A further positive for UK producers has been the dearth of competition from overseas – not least because raw board prices on the Continent are generally 12-15% higher than those in this country. At the same time, currency factors and ongoing restructuring of chipboard production capacity in mainland Europe have helped to boost demand for UK product from Continental importers looking to satisfy improved order files in their own countries.
Even larger quantities of UK-made chipboard could be heading abroad during 2011 given that “there is still a lot of rationalisation to take place” within Europe, a sectoral expert commented this week. “There is a lot of old production kit out there that is difficult to run profitably at the moment,” he added.
Pfleiderer impact
A spokesperson for a Continental chipboard company believed that the review of operations at debt-laden Pfleiderer – the world’s second largest chipboard producer – could have significant implications for the UK market.
As previously reported, the company has taken the decision to close its Ebersdorf mill in Germany in response to “substantial over-capacities for particleboard and MDF in Europe”. With relentless cost increases for raw materials and energy, the continued operation of both plants “is no longer feasible”, the group stated.
Back in the UK, another factor in recent chipboard market developments was the early-December incident at Sonae UK’s Knowsley facility resulting in the death of two maintenance sub-contractors. It is understood that a significant amount of production was subsequently lost.
January affords an opportunity to look both forward and back. Producers contacted this week confirmed that volumes sold in 2010 were at least as high as those dispatched in the previous year; one domestic chipboard contact said his company had achieved year-on-year volume growth of around 12% in the fourth quarter, with sales well spread across all three months. And this momentum appears to have been largely sustained into the early weeks of 2011.
At least one domestic chipboard producer is budgeting for significant volume growth in 2011 – although he pointed out that most of the progress was expected to come at the expense of imports given the strength of the euro in relation to the pound. “Most of our customers are wary but cautiously optimistic,” he said.
Despite reporting a significant year-on-year upturn in dispatches during early January, another producer was more circumspect about prospects for 2011 as a whole: “There are a lot of question marks. I expect a more difficult first six months. I would say most customers would be happy to do the same as they did in 2010.”
