While the UK chipboard market appears to be generally busy with good demand, raw materials costs are at record levels and low prices are contributing to some nervousness in the industry. Most people stop short of using the word ‘crisis’ but, in the opinion of one contributor, the situation is ‘verging on a downturn’. ‘Price is the problem,’ he said. ‘The construction market is still running – but on fumes at the moment.’

The contact believes that there will be ‘huge confusion’ after the forthcoming general election, irrespective of which political party gets in, although he concludes that it will probably be Labour. ‘From the construction point of view nothing new is going to happen and we’ve got a lot of people fighting for not as much business out there,’ he said.

Another contact singled out chemical prices as being at a high and said he did not know whether the situation would resolve itself by the medium or even long term.

Flooring market

The flooring market is going from strength to strength and demand for value-added products, which now account for a high percentage of production in many firms, is also healthy. In fact, value-added products are credited with helping at least one overseas-based chipboard manufacturer, which admits to having a comparatively modest but growing presence in the UK market, to avoid ‘the problems the UK mills have’.

‘We are very focused on what we do, we don’t try to be all things to everybody,’ said a contact from the firm, which sells chipboard flooring and related products to merchants and distributors supplying the construction industry. He said his company was ‘well ahead of budget’ and that business was going well. However, he added his voice to a growing clamour for price rises.

Yet another contact said he was also very busy but that low prices were causing difficulty: ‘Good volumes, lousy prices – it is the story of the timber trade,’ he said. ‘There is nothing wrong with volumes at all, our mill is just about sold out at the moment.’

UK mills seem to be operating in a distinctly worse cost environment than their overseas counterparts, which some believe is at least partly the result of overcapacity: ‘Chipboard prices are very low because of over-production by UK mills and some rather crazy marketing strategies,’ said one contact. ‘I think two of the UK mills are losing an awful lot of money and they still seem to be dropping prices. It’s a bit strange.’

The German, Belgian and French chipboard markets are also in difficulty with regard to costs, primarily because of a decline in demand from the construction sector and overcapacity in the market. But overcapacity on the Continent is not as acute as that in the UK, said one contact, because some European mills have come out of the supply chain in recent months and relieved the pressure. It is possible, though, that some of these mills may restart production and ‘come back into the cycle’ in future, he added.

Price manipulation

However, another contact said the key issue over current price levels was not whether there was a shortage or glut of chipboard, rather it was the ability of chipboard-buying customers to manipulate prices. A tide of consolidation among buyers, particularly on the retail side, has given ever larger groups unprecedented leverage on chipboard prices, he believes. ‘From a market volume point of view we are about stable and order books are reasonably full,’ he said. ‘But price is under pressure. The important thing is customer strength and their power to force prices down.’

One UK producer, while agreeing that prices are too low, believes they are at least relatively stable at the moment. ‘But they do need to move up again,’ he said. ‘It is just a matter of picking the right moment.’

The contact also cast doubt on the contention that over-capacity is partly responsible for difficulties being experienced in the UK. ‘One of the things that surprises most people who are not up to speed with the UK market is that, while there has been an increase in capacity at Sonae, Nexfor, in Scotland, took out significant capacity last year, so the market is in balance,’ he said.

‘There is no real oversupply as such and, on that basis, there is no market-driven reason for prices to fall. Indeed demand is fairly healthy at the moment for chipboard products and, if anything, manufacturers are probably feeling a little more bullish.’

He believes that the industry needs a 10% increase in prices, in order to ‘return to a meaningful level of profitability’, although any increase would have to be staged. ‘We were looking to move prices forward in the second quarter but that opportunity has passed us by,’ he said.

Raw material prices

Another contributor said that, while the prevailing chipboard market was generally ‘not bad’ from his perspective, raw materials prices have ‘gone through the roof’. The industry needed to see an immediate 5% increase in prices just to stand still, he said, admitting that there was little sign of it actually happening. ‘Maybe we’ve just got to be brave and put our own prices up,’ he said.

But one contact said he would applaud any UK manufacturer attempting to raise prices in the current climate. ‘I hope to goodness they do but I think that going for a price increase at any time is risky, because you are accused either of being opportunist or, if you think you can force the market, of dreaming.

‘I know it smacks of a cartel but I think that the only way UK mills will get a price increase is if they all go for it,’ he said. ‘I think they are all experienced enough to know that if one mill raises prices, it gives an opportunity for other companies to go with them but, for certain, it is absolutely necessary to raise prices.’

The contact, whose firm operates in the UK and a number of other markets, said that, despite appearances, things are not as bad here as in some other countries. ‘In some places the only thing customers know how to do is to ask their suppliers for a price reduction,’ he claimed. ‘They don’t even beat about the bush. The conversation goes something like: "We are having to give price reductions to our customers", or "we are being put under pressure on margin by imports, therefore you must give us a 10% price reduction". I don’t believe the UK is at that stage.’

Subtle methods

UK buyers are a lot more subtle, the contact said, achieving their gains by indirect means, such as requiring more features on the product for the same money, by demanding improvements in packaging and better distribution. ‘They say "we want you to hold stock in warehouses up and down the country" but, in the end, all that sort of stuff affects the bottom line,’ he said. ‘If you look at the producers, they are also all running, in some way or another, a pretty in-depth distribution service.’

One overseas-based panel manufacturer is planning to expand its MDF production later this year but insists this will not be at the expense of chipboard, which it continues to regard as key to its product offering. ‘We won’t be reducing our emphasis on particleboard,’ he said. ‘We are specialists and we are adding to our specialisation and enhancing our product range. Our priority is shifting from a single strand of wood based panel products, to multi-strand.’

Innovation is seen by some people as crucial to success in an increasingly design-led panel market. One firm, which recently introduced a new range of laminated products, said the initiative had been met with a very positive response. ‘One of our key distributors has already committed to stocking all the new range,’ said a contact.

‘New initiatives and new designs have been welcomed throughout the value chain because it gives an opportunity to move away from the customary arguments over price and basically looking at product development, which is very important.’