The UK chipboard market is "in reasonable balance" as it heads into the heart of the summer, with certain domestic producers choosing this moment to implement further price increases in a bid to offset further cost escalation.
Having introduced a price increase of 4-5% on its raw board several weeks ago, one producer identified urea as the main source of cost pressure – "but also electricity and gas costs have not come down much from their winter levels", he added. Another leading chipboard maker is in the process of following up recent 4-8% increases in its distribution area with similar hikes for the building products sector. According to a senior spokesman, urea and methanol costs have been heading up towards the peak levels seen at the end of 2011 while competition from biomass had pushed timber prices higher.
Demand is described largely as "steady" although activity on melamine-faced chipboard was upgraded by several contacts to "quite busy"; shopfitting and social housing appear to be among the brighter spots in the overall market.
In the distribution sector, meanwhile, competition for available orders is said to have become ever fiercer "because demand out there is generally slower". One contact acknowledged recent price increases but questioned whether any further hikes could be made to stick in the current climate, adding: "Despite manufacturer increases, some people are selling at prices that are lower than they sold at last month." Reporting on the first quarter of 2012, Norbord said in its most recent financial package that particleboard prices held on to a 13% gain compared to the same quarter last year. Quarterover- quarter, however, particleboard prices were essentially flat.
Specifically with regard to flooring grade chipboard, a leading distributor said that demand was "OK" but that prices were under pressure. The rationale behind manufacturer price increases was understood because of the cost burden they were shouldering, but the margin opportunity for distributors was "zero", he added. Price increases "have to be passed on by us because it is very competitive out there".
Meanwhile, the situation at Sonae Indústria UK’s Knowsley facility is causing ripples in the domestic chipboard market. As reported recently, the company has been struggling to secure the licences to install the recycled wood cleaning equipment which, it has been said, "is necessary for the viability of this lant". While it would be possible to operate "for a while" under the current circumstances, this would not be feasible "in the medium or long term", TTJ was told by the company’s managing director Nigel Graham.
Speaking even more recently to TTJ, Mr Graham said that the company was awaiting "constructive engagement" with senior local authority officials before it would be prepared to proceed with phase two of its plans – entailing an investment of £35-40m – to re-develop the
Knowsley facility in the wake of last summer’s fire. "We want an indication that they recognise the massive investments we are making," he said. Given that the plant directly employs 250 people and brings knock-on benefits for many other businesses, he is frustrated at the lack of engagement and "informed guidance" from the local authority.
"We are looking to achieve long-term security of the jobs here," he said. "They [in the local authority] should be trying to encourage more business activity, not less." Management at Sonae group headquarters were also "totally frustrated" with the situation, he added.
However, he stressed that the company is "continuing to produce despite being in a difficult position." He also underlined that the Sonae group was "committed to maintain the business they have within the UK" and that, in the aftermath of last year’s fire, volumes had been supplied from elsewhere in the group in order to provide customers with continuity of supply.
Centralised business structure
An announcement in early May from Belmiro de Azevedo, president of the executive committee at Sonae Indústria, also caught the attention of the marketplace: he confirmed the implementation of a more centralised business structure which consolidated Iberia, France and Germany but left the UK business separate. However, Mr Graham insisted that the timing of the announcement was "purely coincidental" and that the issue is "completely unlinked" to the aforementioned investment situation at the Knowsley facility.
Mr Graham expressed disappointment at a press report alleging that Sonae Indústria "is now looking at a possible closure of the Knowsley particleboard plant" and described some of the rumours surrounding the future of the plant as "mischief-making". He said: "No decisions have been made [about the plant] but that’s not what the market is saying – and that’s disappointing."
Other experts contacted this week said that a "wait-and-see" attitude was pervading the UK chipboard market pending any further news from Sonae about the situation at Knowsley.
The announcement of the consolidation of Sonae’s continental businesses was contained in a first quarter results package from the group in which it was also confirmed that, when compared to the same period in 2011, turnover in the UK had remained "flat". Quoting figures from the Office for National Statistics, it said that new housing orders in the UK fell 2% in the fourth quarter of 2011 when compared to the previous year and that the UK construction sector "continues poor". Looking ahead across the group, it added: "We expect prices in the market to be pressed by the chemical cost increases."
A domestic chipboard producer and several distributors claimed that "access to finance" remains at the heart of business community concerns. Also, the eurozone "spectre" is looming over the market "and affecting how much everybody is willing to spend". Sentiment will not have been improved by a recent assessment from John Authers, senior investment analyst at the Financial Times and the newspaper’s main commentator on international markets, that a more general and
disorderly collapse of the eurozone could trigger a double-digit decline in GDP across the region.
Meanwhile, the latest statistics from the Timber Trade Federation (TTF) reveal that the UK’s particleboard exports more than doubled during the first two months of this year: some 17,000m3 was shipped overseas in January- February 2011 but this figure soared 111.6% to 36,000m3 in the corresponding period of this year. Exports throughout the whole of 2011
amounted to 121,000m3.
UK imports of particleboard were also significantly higher in the opening two months of 2012, according to the TTF. The total of around 69,000m3 represented an increase of 22% over the 56,000m3 received in January-February 2011, with volumes arriving from Germany and France climbing, respectively, 38% and 29% year on year. However, a senior chipboard producer figure insisted that, of late, imports from the Continent have been applying little real pressure to the UK market. "Not much is coming in," he said.
The competitive position of chipboard suppliers located on the Continent will have been helped, of course, by the recent weakness of the euro in relation to the pound. However, as one expert put it, price levels in the UK for "commodity" items are still not high enough to attract major volumes from the eurozone. Another commented: "We are not seeing much in the way of imports at the moment because there is not an abundance of capacity on the Continent."
