The chipboard market trading frenzy that dominated much of 2021 has eased as the market has become better balanced, allowing the supply chain more time to sell, rather than chase, product.

UK chipboard manufacturers continue to concentrate largely on P5 and value-added board, such as MFC, and produce enough P2 and P3 to satisfy long-standing customers. From housebuilders to kitchen manufacturers, customers have full order books, but nevertheless product availability has generally improved, perhaps thanks to the Christmas break allowing the market to settle a bit and for supply to catch up with demand.

According to one merchant, however, the P5 market is finely balanced and time will tell which way it falls. “It’s tipping slightly towards more availability than demand requires but it might be a brief respite before we see upward movement in prices again and tipping slightly towards lack of availability.”

Unlike last year, when he was scrabbling to buy P5, and sometimes buying from other merchants just to have stock on the shelves, procurement is now calmer and he can get more consistency of brand.

“We’re spending less time chasing product and more time doing positive things,” he said.

But it’s a different story for peel-clean P5. “That’s where supply definitely hasn’t caught up with demand, to the point we struggle to procure the product,” the merchant said.

A £2 drop in the replacement cost of 22mm P5 was an indication of the market balance, he said, although he didn’t expect the price to fall further. Producers, however, have raised prices to cover their increasing costs.

For another merchant facing problems securing P5 at the right price, the mention of chipboard sends a shiver down his spine.

“We’re having to work on loss leaders sometimes so as not to lose customers to others who are using buying groups and able to buy at a lower price,” he told TTJ. But, he added, “Even though we have a challenge on price and availability we’re selling higher volumes than we were last year, but at similar prices. Construction has come out of the traps and our sales volumes [for all products] for the second part of January were 25-30% higher than the same time last year.”

While the merchants TTJ spoke to saw supply and demand as finely balanced, a producer said P5 supply was still falling short of demand. “We’re making as much as we can, and it’s all selling,” he said.

If that’s the case in the early winter months of the year, then the prediction of another producer for “very high demand” throughout the year, may well be right.

This is backed up by the Construction Products Association’s latest quarterly forecast. It expects construction industry output will grow by 4.3% this year, slowing to 2.5% in 2023 compared to the 13.3% seen in 2021, and that housebuilding in particular will remain buoyant.

In terms of product choice, the chipboard market continues to migrate from 18mm P5 to 22mm. “That will continue to the point where 18mm will be there only to repair existing 18mm board. The migration has made excellent progress and is continuing and that’s great. The more we can sell a value-added product the better for everyone and the better product the customer gets,” one contact said.

The use of OSB T&G in place of chipboard is also starting in the UK.

“We’ve tried to ease pressure on P5 by substituting OSB. I don’t think it will be too long before the market starts changing to OSB and we’re trying to get ahead of that,” a merchant said. “18mm OSB has the same structural integrity as 22mm chipboard so you need less raw material and you can have more product on a lorry.”

Another contact also believed that the UK would eventually follow Europe into using OSB rather than chipboard for flooring. He predicted the transition would take two or three years.

“It’s not just a substitute, it’s a saving because with OSB you can build with better structural properties,” he said.

Demand for MFC and decorative board has remained strong over the past year and into 2022 as furniture and kitchen manufacturers have continued to be busy.

“MFC demand is very stable,” said one chipboard producer. “Our customers have orders into May. They always seem to have the same activity level because they’re more restricted by capacity than orders.”

Another producer also reported “robust demand” for MFC and decorative board, driven largely by the kitchen sector, but at a more manageable level.

“After two extremely difficult years where we’ve had to control customer demand, regrettably, the market has normalised a bit and we’re able to supply customers to our normal timescales,” he said.

He agreed that the challenge for the kitchen and other home improvement sectors was the shortage of fitters and installers.

Another shortage that plagued the UK last year was haulage. The problem has eased but in no way been solved.

Deliveries across all industry supply chains have improved but the Road Haulage Association has warned that the UK is still short of 80,000 drivers. This is down only 20,000 from its 100,000 estimate at the peak of the crisis in late summer last year, and the haulage sector is in a precarious state.

The quieter post-Christmas months improved lorry availability but the future remains uncertain. The average age of HGV drivers in the UK is 55, so many are nearing retirement, and the government’s temporary measures to alleviate last year’s crisis – the relaxation of drivers’ hours and the emergency visas for European drivers – ended in February. Added to that, there are busier months of demand ahead and, while chipboard contacts report fewer haulage problems, they are under no illusion that the shortage has gone away.

“We’re watching and waiting because it’s a seasonal market,” said one contact. “The haulage problem is chronic, long-term and strategic. We believe it’s going to be a challenge for the whole industry, particularly as we hit seasonal peak.”

While haulage availability may be uncertain, there is certainty in the rising cost of transport. “You have to pay the market rate to secure capacity and the market rate is going up on a regular basis,” the contact said.

And that was prior to mid-February when the UK price of petrol and diesel reached a new record high in response to fears of the Russian invasion of Ukraine.

For the chipboard producers transport is just one of several cost pressures that have been reflected in product price increases.

The chemical shortage, which took hold last year, has continued, as have the price increases.

“Melamine, urea and methanol are all made from natural gas so the increase in gas prices has pushed up chemical prices,” one manufacturer told TTJ.

To ensure his chemical supply he was now buying from “multiple sources” worldwide and having to pay a premium on some.

“We have enough but it’s tight and if one plant goes down for maintenance, it’s even tighter,” he said.

Another producer said his company had faced “very, very significant increases in prices and costs” and, although they had now stablised to some extent, they were not falling.

“We can’t absorb that so we have had to pass it onto customers,” he said.

Manufacturers, as ever, are also mindful of raw material supplies. In Europe, by-product volumes are down as sawmills have slowed, partly because the beetle-damaged timber of recent years has moved through the system, but there’s the possibility that UK sawmill output could also pull back.

These concerns aside, the chipboard sector is generally optimistic about this year’s trading as activity in the housebuilding, kitchen and furniture sectors remains strong but it’s a difficult time to make forecasts.

As Covid restrictions are lifted, many households may be eager to spend money on holidays rather than on their homes, and there are also the financial pressures of rising energy and food costs, high inflation and the increase in national insurance in April. In addition, this year there are two four-day bank holidays – Easter in April, and the celebration of the Queen’s platinum jubilee in June – which will slow work on building sites but could boost DIY demand.

“We’re aware of the risks and can see the head winds,” said a producer. “Certainly visibility of what’s going to happen in the second half is difficult.”

One merchant was optimistic, but preparing for the worst.

“The knuckles are white already but it certainly can’t be as turbulent as the last two years – and if it is, we’re better prepared for it,” he said.