Summary
• Manufacturers expect little change in the market this year.
• Demand for T&G board is particularly poor because of the stagnant newbuild housing market.
• Chipboard prices have fallen by around 15% this year.
• Some rationlisation of the industry is expected.

There are some companies spying silver linings in the UK chipboard sector, but clearly the market overall remains tough.

“If you ask most of us about the state of trade, we’ll give a slightly different word for difficult,” said one manufacturer. He estimated that demand was down by at least 30% on the year, but said some estimates put it closer to 50%.

With the depressed activity in newbuild housing, one producer said the weakest area “by a mile” was tongue and groove. But on the upside, his company was seeing melamine-faced chipboard (MFC) sales at record levels in nearly a decade in business.

Chipboard prices have fallen by around 15% since the beginning of the year, TTJ was told, but are now, for the most part, holding firm and have levelled out in the past couple of weeks. One manufacturer speculated that prices may have dropped as far as they’ll go. “It’s dangerous to say that we’re near the bottom, but we may well be,” he said.

Another producer said there were still “stupid deals” being done at the moment in order to move “relatively small amounts of board”, although maintained that his company would not take part.

Forward ordering

Forward ordering has fallen to less than a month, with one company saying it was now working hand to mouth, while others were averaging one to two weeks. One manufacturer, which used to work on forward orders of three to six months, now cited a maximum of three weeks.

To minimise costs, manufacturers are trying to keep stock levels low and under control, less than two weeks’ worth for most materials to just a few days’ supply for select materials. A spokesperson for one manufacturer said levels were “reasonable” after being way too high two or three months ago, but they were still looking to bring them down.

Output is being cut in line with falling demand. One producer is taking it “month by month and adjusting production accordingly”. It would not produce “just to put board in the warehouse”, a contact said, and the company will take downtime if it sees any further downturn in the market in the coming month. “March has been a reasonable month for us, but we’re looking very closely at the first few weeks of April,” he said.

It’s a similar story elsewhere in Europe. An importer said one of his suppliers had reduced production by 25% and was intending to extend the traditional summer break and, if circumstances dictated, would close one of its lines permanently.

In terms of costs, one producer said raw material prices had not been reduced in line with market prices and the reduction in output was compounding his company’s problems.

Another contact said costs had remained stable but, for importers, any gains made in efficiencies or raw material costs by their suppliers had been wiped out by the lower value of the pound.

Exchange rates

The weak pound has deterred some imports to the UK entirely and encouraged UK producers to export, helping them maintain a certain level of production. “If there had been imported board coming in, the UK situation would have been far worse,” a producer said.

The only problem here, he said, was that transport costs (now proportionately higher due to the falling price of chipboard and up to 15-20% of the value of a load of chipboard) were eating into the price benefit for exporters created by exchange rates.

Manufacturers are struggling to forecast what will happen later this year, but the general feeling is that there will be little change in the market – and perhaps not for the next two years.

Many expect some production facilities to close, especially less modern and inefficient plants. “There are still too many companies that are not efficient, or have a high level of debt,” TTJ was told.

The larger players will have to look for rationalisation throughout Europe, if not globally, another producer said. And the improved competitiveness they achieved through this would put pressure on smaller companies.

In the last market report, the lack of available credit was reported as a major obstacle for the chipboard market and one UK producer said that it is still an issue. “The industry has never been under such pressure regarding debt insurance. The ability of the manufacturers to trade with existing customers and new customers is being greatly curtailed by their ability to gain credit insurance,” he said.