Demand has been reasonable in a number of areas of the chipboard trade, but the mood of the market continues to be dictated to a large extent by the inability to secure higher prices for end product.
An already difficult domestic situation has been exacerbated by poor demand in many parts of mainland Europe, which is said to have prompted a number of Continental producers to set their sights on the UK market. German manufacturers are said to be particularly “aggressive” at present, although it was also argued this week that the overseas companies targeting the UK were already established players in this market. At the same time, it is clear that freight costs and the intrinsically low value of chipboard have combined to dissuade some exporters from mounting an assault on the UK market.
“Overcapacity in the chipboard industry has become more pronounced with the general economic downturn,” commented one expert. “2002 will not be a year to live in one’s memory.”
Isolated expectations of an upturn in chipboard prices during the autumn have proved unfounded and many UK operators appear to be struggling to hold on to what they already have. A large proportion of them are continuing to shy away from the standard board market because of the desperate state of margins – dubbed this week “healthy competition at unhealthy price levels”.
Intense pressure
However, those opting to concentrate on niche and value-added products are also largely dissatisfied with the fruits of their labour. Concern was expressed that, since “this year’s added value is next year’s bread-and-butter product”, the industry was under ever more intense pressure to find either new niche products or new technologies which would reduce production costs.
According to another expert, distributors were no longer able to make money out of standard chipboard and only carried it as a service to customers wanting other products within their sales portfolio. So many distributors had access to such an extensive range of added-value products that customers were able to “play one supplier off against the other”, he explained. “I don’t see any way that the market is going to change for the better in the near future.”
Another rather grim view expressed this week was that many chipboard operators were being “kept afloat by the better situation in the MDF market”. One source said: “Nobody is making any money on standard chipboard. Everyone produces to the relevant quality or standard and so it is hard to be different. At the same time, there is very little new business out there.”
Suggesting that any substantial price increase would have to be triggered by capacity closures, he added: “We don’t sell any more, we are just debt collectors because we are giving the material away.”
Summer improvement
One UK-based manufacturer confirmed that order books had improved considerably since the summer but that decent financial rewards remained elusive. “It is not a volume problem – it is a value problem,” he said. “There has been a three- or four-fold increase in insurance costs for some of the big sites in the UK, to the point where some of them are becoming almost uninsurable. Other costs – like those for health and safety – are also getting higher. The industry is like a punch-drunk boxer who keeps taking it on the chin, but we need to be asking whether this can go on.”
The market for furniture size boards was offering “something of a contradiction”. On the one hand, demand was fairly strong from some areas of the customer base while, on the other, prices had remained stranded but stable at a low base. “The general feeling is that, if you exclude resin and woodchip costs, there is no real reason for the prices to be any higher,” said one contact, who added that his own company was budgeting for only a small price increase for the first half of next year.
|
“The industry is like a punch-drunk boxer who keeps taking it on the chin” |
According to several contacts, demand for melamine-faced chipboard has been on something of a rollercoaster for most of this year, with strong orders one month replaced by a slump in buying interest the following month. Prices in the UK are being put under pressure by imports from countries where domestic demand has been hit even harder by the widespread economic downturn. One source observed: “Our prices have weathered most of the storm but some of our customers have been moaning about getting lower offers from elsewhere. Some people seem to be taking the short-term deals on offer.”
Flooring provides salvation
On a more positive note, several contacts expressed the view that flooring grade chipboard prices had “bottomed out” and that increases were by no means out of the question for the start of next year. At the same time, it was suggested this week that laminate flooring was proving to be the salvation of many chipboard manufacturers in terms of providing a reasonable cash flow. Strong growth in the UK market for laminate flooring is expected to continue for several more years.
Other chipboard markets appearing to perform quite well this year have included thick flooring as well as thick boards for the fire door market.
One company to maintain a positive outlook on the chipboard sector is Vertex Panel Products Ltd. Managing director Joe Martoccia told a recent Plywood Club of London meeting that production had increased from an estimated 170,000m3 to 220,000m3 per year since he and three business partners had taken over the Shildon plant from George Reynolds earlier this year. The purchase raised eyebrows in the trade given not only the uninspiring state of the market but also what many see as the shift in the balance of panel product power away from chipboard in the direction of MDF and OSB over recent years.
However, the company claims to have an order file that is “healthy going forward” and reports particularly strong demand for flooring products and T&G chipboard for the distribution network.
Vertex Panel Products
Arguing that there was no large “overhang” of production compared with demand in the UK, Vertex is planning to run through Christmas and the New Year in order to build stocks from their current low levels. However, there were suggestions that other manufacturers may adopt a different approach over the coming weeks.
Vertex envisages 2003 as a year of consolidation and of continuing efforts to realise the full potential of the site at Shildon. However, in terms of the wider and longer-term perspective, the firm recognises the over-arching need for value-adding operations. This would require significant capital expenditure and “possibly even a joint venture”, it was stated this week.
As for current investments, Kronospan reported this week that its new melamine press was in the process of coming on stream at Chirk, providing the company with an additional 8,000m3 per month of melamine-faced chipboard capacity. “Our demand has increased through the year,” said a senior spokesman. “We have never had enough spare capacity to take on what is available out there, so this is capacity we can use.” The new volume will be aimed at a wider range of furniture companies either through distributors or direct to the end users.
No news would appear to be good news with regard to the Hornitex group, which is continuing to operate while in administration. There seems little likelihood of a new buyer coming forward in the near future given the state of the chipboard trade and the poor economic situation generally. As one industry contact commented this week: “It strikes me that a fast way to lose money is to buy a chipboard factory.”
