Although UK chipboard producers have been taking steps to boost their productivity, supply remains a challenge in the face of strong demand across virtually all of the UK’s consuming sectors. Indeed, at least one producer anticipates a continuing need to secure inter-group imports over the coming months in order to keep pace with order levels in the UK. As one panel supplier put it this week: "We could do with everything being as busy as chipboard."
Line upgrades last year and early this year have yielded "significant" productivity gains for one producer – "but it’s all selling".
Compared with the same period last year, the sales volume increase in the first four months of 2014 was "way into double-digit percentages", he told TTJ. "It’s a totally different market now. Demand is very large."
Another explained that a rationalisation programme and work with customers over recent months had weeded out some of the more "inefficient" products and delivered a 5-6% increase in production "through better optimisation of the plant".
The company’s approach, he said, had involved "walking away from certain business" and was based on trying to ensure the best return on plant output while continuing to meet established customers’ needs. As a result, the operation has achieved a doubledigit boost to revenues from chipboard over the year to date despite a significantly smaller percentage increase in sales volumes. This strategy will also involve managing the flow of product and keeping back some stock for what is expected to be a very strong autumn period in terms of sales. Full production is anticipated over the summer, he added.
Overseas supplies
The tight supply is prompting some UK buyers to look overseas for chipboard. And while certain established Continental suppliers are continuing to ship to the UK, improving demand in many parts of mainland Europe has meant "it’s less easy to bring material across to the UK", according to one contact. "A lot of Continental capacity has closed in recent years and that’s showing through now."
Another agreed that the combination of recent capacity rationalisation and now rising chipboard demand on the Continent, particularly in the German market, had trimmed the volumes available to be shipped to the UK. And a spokesperson for a Continental producer pointed to "unusually" high chipboard prices in some European countries, including Italy, as testament to the widespread tightening of supply.
One expert reckoned that, even if UK-based chipboard mills produced to their maximum, the market would still be 500,000-600,000m³ undersupplied on an annual basis given current demand. Thus, any squeeze on availability from the Continent would have significant implications for the UK market, he said.
The latest figures from the Timber Trade Federation underscore the UK’s increased reliance on Continental board. In February, imports soared 35.6% on February 2013, giving a cumulative volume for 2014 of 117,000m³, compared with 86,000m³ for the same period last year. France, Germany and Belgium all increased volumes to the UK. France’s shipments increased by nearly 80%, giving it a clear lead as its market share rose by nine percentage points to 35%. The growth in volumes from mainland Europe meant Ireland lost market share.
A regular Continental supplier into the UK spoke of "unusual" enquiries from this market of late, including for P2. He said that his business was sending more chipboard to the UK – notably in thicker dimensions which, he claimed, are "in shorter supply than others". Company prices had been raised around 6% this year and further increases were likely by the early autumn if demand in the UK remained – "as we are expecting" – at current levels, he added.
The same contact also noted "opportunistic" imports from companies which, traditionally, haven’t served the UK market.
For one UK producer, April was a recordbreaking sales month for melamine-faced chipboard (MFC) owing to mounting demand from across the main outlets, including shopfitting, kitchens and office furniture. T&G orders have also grown, albeit at a slower pace. Meanwhile, poor weather across many parts of the UK had dented housebuilding in the early months of the year but activity subsequently improved, thus boosting raw chipboard demand. "We are making more, but demand is keeping pace," said the same producer. Another producer agreed that chipboard demand from builders had been "slow to get started" in 2014 but that the better weather had prompted a rebound, particularly in the new housing sector.
Housing market
In reporting its financial results for the first quarter, Norbord highlighted "strong" demand for panel products describing this as a reflection of "improving housing markets in the company’s core geographies, particularly the UK and Germany". Year over year, average chipboard prices had strengthened by 8%, it said.
According to group president and CEO Peter Wijnbergen, the positive Q1 performance was expected to continue "as our markets in the UK, Germany and Benelux build momentum".
UK chipboard buyers offered little or no resistance to the price increases introduced late in Q1 or early in Q2. And these hikes were substantial in some instances: one company, for example, pushed through increases of 8-12% on raw board, 5-7% on MFC and 5% on both worktops and T&G; meanwhile, another business introduced increases of more than 8% on its raw board and upwards of 5% on its MFC. With demand so healthy, producers believe the market ingredients are in place for further upward moves over the coming months; indeed, one producer gave a clear indication that he would be increasing his raw board prices in late May or June, while another UK producer said the next set of hikes was likely to come in August or September and would extend across the company’s range of products.
Several other contacts underlined what they saw as significant scope for higher MFC prices. Even costs are struggling to dampen the enthusiasm of producers in the current market conditions. The price of chemicals has become generally more stable, with methanol actually recording a drop following the steep hikes at the start of the year; however, there is an expectation that urea costs will gain further ground in the months ahead. Meanwhile, energy costs have also eased, although the unrest involving Ukraine and Russia is fuelling concerns of possible supply disruption and potentially higher bills.
As before, the main worry in cost terms remains timber, with prices continuing to rise in response to a combination of factors, 17/24 May 2014 www.ttjonline.com | TTJ 15 including competitive pressure from biomass and strong demand from sawmills. One of the UK’s chipboard producers is anticipating a further 10-15% surge in its wood costs over the next six months or so.
For chipboard, supply appears set to remain the stand-out issue of 2014. Domestic mills are doing their utmost to increase production to meet rising demand, but imports continue to satisfy a portion of the market – a share of which home producers would doubtless like to claim if the capacity were available to them.
UK producers appear confident that the supply-demand equation will continue in their favour for the remainder of 2014. "The market all round is a lot better than it was and everybody is still very optimistic," insisted one of them. "It should be a reasonable year and one which hopefully sees a better return on investment than we have had for a number of years."
Global chipboard market to boom by 2017
The recovery in US housebuilding, an expanding global furniture industry, and strong growth in housing construction in eastern Europe and Russia will lead to a boom in chipboard production by 2017.
According to BIS Shrapnel’s Particleboard in the Pacific Rim and Europe 2013-2017 report, Europe will be the main beneficiary, with exports set to more than double as production expands in Belarus, Bulgaria, Hungary, Latvia and Russia.
However, price growth may be limited as consumption is expected to lag behind production, unless demand increases in non-producing regions.
Production in the main producing countries is projected to rise from 73.6 million m³ in 2012 to 88.6 million m³ in 2017, and consumption from 72.2 million m³ to 84.8 million m³.
"Consumption in non-producing regions such as the Middle East, Africa and South America will need to be in the order of 3.8 million m³ by the end of 2017 for a surplus to be avoided," said report author Bernie Neufeld. "Therefore price increases will be constrained somewhat by the expected surplus in supply."
Western Europe, excluding Russia and Turkey, remains the dominant chipboardproducing region, accounting for 38.9% of the world’s production in 2012, or 28.7 million m³.
By 2017 the region’s production is expected to reach 34.8 million m³.
When Russia and Turkey are included, the region accounts for 53.4% of global production, due to rise to 53.9% by 2017.
