"There is still business out there but you have to be prepared to fight harder for it." That was the market summary offered by one chipboard expert this week – and it was a view broadly shared by several other senior industry contacts.

At least one domestic chipboard producer is raising prices this month in response to a combination of reasonable demand and the seemingly relentless march of costs. Having upped its melamine-faced chipboard (MFC) prices at the start of the year, the business has now informed its customers that all raw board products – including T&G – will be subject to an increase of around 5% with effect from mid- April. Asked about the anticipated reaction of the market to this hike, a spokesperson told TTJ: "I think most people will understand. This increase will certainly not be the last across all chipboard products for this year."

For the company, cost escalation has been the ultimate driver of the decision to increase its P1, P2 and P5 prices at this point. According to the spokesperson’s own calculations, the operation’s gas costs have soared around 50% on a year-on-year basis while its electricity bill has jumped approximately 45% over the same period. "These very high levels are partly down to the cold weather we had in March," he said. In addition, the company’s melamine costs have leapt 42% year on year and, following the implementation of a further hike at the start of April, its methanol bill is now 24% higher than it was 12 months ago.

His counterpart at one of the other domestic chipboard operations worked out that total costs for his business had increased by 4-5% since the final quarter of last year, with rising wood and resin values identified as two of the main sources of upward pressure. And while no date has yet been set for the next increase in the company’s chipboard prices, he confirmed that 4-5% would also be "the magnitude of the increase we would be looking for" when the time comes. The same contact said that a price increase was unlikely to be introduced by his company in the second quarter but it could be in the second half of the year.

Regarding this reluctance to approach the market with a price increase proposal in the near term, he explained that the business had witnessed a noticeable upturn in competition from mainland European board during the recent period of relative euro weakness. "The Continental market is quieter than that in the UK and there is a lack of confidence over there," he said. "France and Spain are particularly quiet and so producers there have been looking elsewhere to make sales. In the UK, this has put a bit of a damper on the market for domestic products, so it’s difficult for us to see much price improvement in the current quarter."

Indeed, regular and substantial price progress has been difficult to achieve in recent times: in its latest results announcement Norbord said that European chipboard prices had firmed up in 2012 – but that the overall increase had been limited to just 1%.

Potential supply shortage However, one domestic producer was quick to reiterate a view expressed in our previous chipboard report that supply could well become an issue for the UK market in the not-too-distant future following the withdrawal of Sonae from the domestic producer arena. "It is hard to say whether it will be in six months or a year, or longer still, but at some point we will not have enough chipboard in this country," he said. The loss of the Sonae UK operation at Knowsley has already been assimilated by the market and its volumes have been spread quickly across those remaining producers, he added.

For the moment, reasonable rather than runaway demand appears to be keeping UK production lines operating at near or full capacity. One producer spoke this week of a decent start to the year in terms of order files as customers looked to rebuild stocks. There had been a subsequent dip in constructionrelated business owing to, at least in part, difficult winter weather, but late March and early April had brought increased levels of interest from this quarter. Meanwhile, he said, the early months of 2013 had yielded "quite a good market" regarding the furniture and shopfitting sectors, as well as for distribution.

A distributor also reported generally "slow" demand from most of the building sector, with only some of the larger housebuilders regaining any momentum after the weather issues of the first quarter. He expressed the hope that the Help to Buy scheme announced by chancellor George Osborne in last month’s budget would provide the housing market with impetus, although other contacts said this would not be felt for some time. The government is proposing to provide enough guarantees to support £130bn of mortgages for families struggling to raise a deposit, and will commit a further £3.5bn to shared equity loans to buy newbuild homes.

A domestic producer described raw board sales as "static" to "slightly upwards" while purchased volumes of MFC have shown a yearon- year improvement, backed by satisfactory demand from the furniture, shopfitting and distribution channels. "There seems to be a bit more confidence going around," he said.

The same contact also alluded to a recent upturn in enquiries from customers overseas – some of whom, he added, had been deterred from placing orders when the pound had recently been stronger against the euro.

UK exports of chipboard recorded eyecatching growth of 30.4% last year: outgoing volumes soared from 121,000m3 to 158,000m3, although the peak in these overseas shipments was decidedly towards the front end of the year, according to Timber Trade Federation statistics.

Meanwhile, UK imports slid 14.8% from 488,000m3 in 2011 to 416,000m3 the following year, with volumes from France and Portugal dropping by, 25,000m3 and 23,000m3 respectively.

Continental view
A spokesperson for a prominent Continent-based supplier of chipboard to the UK was slightly more downbeat about conditions in this market, describing business as "quiet" or "slowing" for all chipboard materials – including those destined for the furniture, kitchen and doors markets. Demand in the UK was on a par with that in countries "in a similar economic situation", such as Germany and the Netherlands, he said.

His company is just now capitalising on what it perceives as scope for higher MFC prices in the UK by asking customers for an increase of around 3%.

He described raw board prices in this market, however, as similar to those prevailing in central Europe. Overall, he added, there were no indications that UK chipboard demand would improve or deteriorate significantly in the second quarter.

Also looking ahead in its latest results package, Portuguese group Sonae Industria anticipates that the economy in Europe will slowly improve but that "it will still be a tough year in terms of private and public consumption".

CEO Rui Correia described 2012 as "another tough year" as a result of "global macroeconomic instability, the sovereign debt crisis and the doubts regarding the survival of the euro", leading to weak activity in the construction and furniture industry, particularly in Europe. In 2012, group volumes sold fell by 3% to 5 million m3, mainly driven by "the lower activity in the UK, France and Germany".

With regard to the decision to close its Knowsley plant last September following post-fire reconstruction problems, Mr Correia blamed "political and licensing difficulties and the reduced and unsustainable capacity utilisation levels that we were facing".