Summary
• Demand is muted but stock levels are generally manageable.
• Kronospan is planning another week of downtime.
• Producers’ main concerns are over rising costs.
• European producers are also faced with higher costs, as well as the increased strength of the euro.
• Manufacturers are optimistic that demand will pick up in the spring.
With some domestic chipboard manufacturers opting to take significant downtime late last year in the face of rising costs and the seasonal demand dip, the hope was that market momentum would be quickly re-gathered in 2008. In the event, a relatively muted start to the year in terms of demand has prompted further action in some quarters to control stock growth.
Having halted production for 12 days in December, Kronospan is planning a further week of downtime at its Chirk plant in early March in a bid to reduce its stock levels. Inventories are higher than normal or desirable for the time of year, leaving the company with little interest in building stocks even higher with the Easter holiday period approaching, TTJ was told this week.
Other producer contacts also expressed dissatisfaction with their stock levels, but this issue is certainly not provoking any sense of desperation in manufacturer circles.
At Sonae UK’s plant at Knowsley, where output was stopped for six days prior to Christmas, the management team described the current stock position as manageable. No further downtime was planned beyond the three days already budgeted for routine press maintenance during March, it was confirmed. A further three-day break in production – again for planned maintenance on the press – has been scheduled for May.
Extended maintenance
Egger UK carried out extended maintenance on its new press at Hexham around the middle of February as part of the final commissioning process – but no market-related downtime is planned. At the same time, the company is looking to implement a 3% price increase in its decorative distribution business with effect from March 1 and is negotiating increases for direct business too.
Domestic manufacturers were keen to point out this week that, if demand has been quieter in recent times, it has not been disastrously so, with one producer even suggesting that his company’s sales were “ahead of budget and ahead of last year” across January and February. Order files for melamine-faced chipboard were described as “pretty good” and sales into the office furniture market have been reasonably strong.
Meanwhile, T&G flooring sales have continued to be affected by low housebuilding numbers and a slowdown in the DIY business. At the same time, some producers alluded to evidence of “predatory” pricing, notably in the raw board sector of the market.
However, producers were concerned principally about the severe pressure imposed by rising costs. One senior spokesperson said: “I can’t afford to sell chipboard cheap – and that wouldn’t necessarily give me any more sales volume. I want to keep these price levels in the UK.” Although there has been evidence of some deals being done and some keen pricing on raw board in particular, “there seems to be a limit on the price reductions”, he said.
Another producer spokesperson said he was loath to drop prices because of the higher costs: “You can discount to try to get volume that isn’t there.” Such an approach could win short-term business but did not constitute a workable long-term strategy, he said.
An industry stalwart described the chipboard market as “fragile but stable” before welcoming attempts by producers and major distributors to keep price reductions within reasonable bounds.
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“I can’t afford to sell chipboard cheap – and that wouldn’t necessarily give me any more sales volume. I want to keep these price levels in the UK” |
Considerable effort had been invested in returning greater value to the chipboard market and now “nobody wants to rock the boat”, he said. Taking downtime represented “an extremely responsible way to maintain value”. Whereas there had been a tendency in the past to “pile it high and sell it cheap”, this option had effectively been withdrawn from producers by rising costs. A producer agreed: “We can’t afford to slacken prices. The clear message to the customer base is that costs have got to be passed on to the end user.”
The change in chipboard market conditions over recent months has certainly not been restricted to the UK, with a number of plants on mainland Europe either taking downtime or considering even more decisive action. For example, Norbord Inc has announced that it is to begin consultations with the on-site works council and local unions relating to the possible closure of its particleboard line at Genk in Belgium. The company stressed that OSB production on the same site would not be affected.
According to Norbord Inc’s president and CEO Barrie Shineton, the Genk facility was acquired to expand the company’s OSB presence in Europe whereas “the particleboard line comprises older technology and has always been considered non-core”. The latter had made a positive financial contribution during recent strong market conditions but “the return to more normal product prices makes this an appropriate time to consider ways to further streamline the site”.
Return to normality
Mr Shineton’s sentiments were echoed by a number of contacts within the UK chipboard sector: in essence, the market has not crashed but has returned to more “normal” levels following the boom times of 2007. At the same time, costs have continued to escalate, with one UK manufacturer calculating that the financial burden attached to producing chipboard had increased by some 15% since November last year. Along with sharp upturns in gas and electricity prices, methanol and urea price hikes have been particularly dramatic; one producer claimed that resin cost increases in the first quarter alone had added £6 per m3 to his chipboard production bill. There has also been pressure from raw material suppliers for more money to recompense them for meeting producers’ more stringent quality demands.
Another pressure has come in the form of surcharges that have impacted on overall transport costs. “Hauliers are trying to recoup their own higher fuel costs and it’s meant they have just imposed surcharges which mean a 3% increase in our own transport costs,” it was explained by one producer. Indeed, the pressure on hauliers is such that the Freight Transport Association and the Road Haulage Association have called on chancellor Alistair Darling to abandon plans to increase fuel duty by 2p from April 1. The organisations are claiming that the substantial hike in petrol and diesel prices over recent months has negated the need for another duty increase.
Continental chipboard producers are facing many of the same problems as the UK manufacturers, as well as another pressure not experienced on this side of the Channel: the strength of the euro in relation to many other currencies – including sterling. According to domestic manufacturers, the exchange rate factor could result in euro-zone production volumes being re-routed from the UK to other markets, thereby opening up more sales possibilities for themselves. A UK producer told TTJ this week: “I see that slowly coming. I am cautiously optimistic – people are calling who wouldn’t normally call.”
Having noted that imports traditionally claimed around a quarter share of the UK chipboard market, with the bulk of the volume coming in from western Europe, he said that only a small proportion of this import business would need to come the way of his own company to make a significant difference. Another UK producer spokesman agreed that a subtle change was in train: “There are some indications that more of that business is coming this way.”
Export opportunities
At the same time, according to one domestic producer, the exchange rate has thrown up “some reasonable opportunities in export business”, specifically with customers in near-Continent markets.
There is a degree of confidence among chipboard manufacturers that domestic market conditions could become more favourable, particularly once the Easter period has been navigated. One commented: “The year started relatively quiet and it has been getting progressively better, but an improvement is not going to happen overnight. March is usually a good month for us, although a lot will depend this year on Easter.”
“I really think we’ll see some recovery, particularly as we get nearer the spring,” said another.
