Views are mixed about the state of the chipboard market, with the current climate seeming to suit agents and importers better than domestic manufacturers. While described as ‘active’ and ‘buoyant’ by some, the market remains dogged by intense price pressures.
One UK manufacturer said the market has become extremely flat and quiet. ‘There are real problems in the retail sales market relating to furniture and kitchens, where they are experiencing a decided downturn in business,’ he said.
Housing starts have fallen, slightly slowing the rate of growth in one of the most consistent and encouraging sectors in the market, flooring. One contributor said he was aware of a lot of building projects being postponed because of adverse weather, creating significant delays in some panel manu-facturers’ order books. ‘We shouldn’t underestimate the impact that this awful weather has had on the trade over the past few months,’ he said.
UK demand for raw chipboard, meanwhile, appears generally good, with ‘encouraging’ sales activity.
Sonae steps up
Sonae appears to be gradually overcoming the teething troubles that have prevented its new Challenger manufacturing facility from producing board at anything like full capacity. Managers at the plant are pleased with the quality of product coming off the lines, though quantities in some areas are described as disappointing. Sales of raw board product from the plant are extremely positive, according to a contributor, though ‘other sales we haven’t yet ramped up to the levels we would wish, partly due to a slower than expected start and severe competition from other manufacturers’.
While cost pressures on chipboard manufacturers are nothing new, the simultaneous and dramatic increases in chemical, energy and timber prices in recent months are a cause of serious concern for many people. ‘All three of these factors have impacted at once this time around and it is leaving many manufacturers, certainly in the UK, in a very difficult situation,’ explained another contact. ‘We have this massive cost inflation that has to be shared.’
The outbreak of foot and mouth disease, which has effectively brought the UK countryside to a halt, is also impacting on the chipboard market, according to one contact. Widespread movement restrictions imposed in rural areas are also preventing caravan manufacturers from delivering their products to parks.
‘Caravan manufacturers are going onto short-term working,’ said the contact, adding that this would result in a slight reduction in business for his firm. Depending on the duration of the foot and mouth crisis, he also flagged up the potential for eventual raw material supply problems if harvesting and log transport vehicles are unable to get into UK forests. This would have obvious implications for timber imports, although there is a possibility that the disease may yet make an appearance on the Continent, which would mean the imposition of similar movement restrictions there.
Another contact dismissed the possible threat to the wider market of a reduction in orders from caravan manufacturers as ‘less foot and more mouth’, though he conceded that such a situation could create problems on a local basis. He also pointed out that UK chipboard plants are located in rural areas. ‘We have had concerned customers asking us about movement restrictions because we have a lot of farming industry around our area,’ he said. ‘But we have no restrictions at all and we don’t think we will have.’
Flooring demand
Despite a fall in the rate of housing starts, the market for flooring-grade chipboard is as strong as ever, according to several contacts. ‘Demand is going up in all sectors of wood flooring and I believe records are being broken in particleboard flooring production,’ said one.
However, despite the apparent insatiable demand, the chipboard flooring sector is not without its difficulties. ‘There is tremendous pressure on UK manufacturers in particular, because yes, prices have risen, but not by enough,’ said a contact.
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“Simultaneous and dramatic rises in chemical, energy and timber prices are causing serious concern” |
Another added: ‘There is nothing more they [manufacturers] can do about it because the market will only pay what the market price is. Complaining makes no difference; they have just got to keep making themselves more and more efficient.’
A UK company which imports chipboard flooring is described as ‘very busy’ by a contact, though he added that demand from some other sectors appears to be flagging. ‘The new-build housing market is not terribly good, mainly because the demand all the time is cheaper, cheaper, cheaper,’ he explained. ‘They are not remotely interested in quality.’
Slightly more positive has been the steady outflow of flooring from retailers and contractors, said the contact, who anticipates a 50% increase in business by the end of the year. ‘UK consumer demand for flooring is very good,’ he said.
Buying power
Consolidation in the retail sector has created buying groups with unprecedented leverage. This is putting even more pressure on distributors, furniture manufacturers and other suppliers to keep their prices low and costs down, though a number of chipboard manufacturers say they intend to stand firm on their price increases, which are ‘vital’ to their remaining competitive. ‘We had a round of price increases in January,’ said a contributor. ‘I can’t say it has been easy to achieve the increases, or indeed to sustain them, but we are hanging on in there and fighting very hard to keep them together.’
Other manufacturing contacts seem similarly dogmatic in their approach to pricing their products and some admit this may even have cost them volume. ‘It is possible, but we are standing firm on price,’ said one.
However, while chipboard manufacturers have confronted the thorny issue of prices, others in the chain have not followed suit. It is said that too many chipboard buyers, distributors in particular, have chosen to capitulate to their customers’ demands and cave in too easily on price. ‘The distributors should could be a lot tougher in their approach,’ said a UK manufacturing contact. ‘Nobody wants to see price increases but I think the resolve of a number of distributors has not been particularly strong. They haven’t really pushed increases into the market in the way that they should.’
An agent for an overseas chipboard manufacturer said he was aware of ‘a requirement through distribution to try and put price pressure on manufacturers’. ‘Distributors are actually achieving good returns at the moment,’ he said, adding: ‘Obviously, everyone is chasing an ever-decreasing slice of the cake in the UK, with mergers and the ownerships of com-panies changing.’
However, many distributors claim their margins are already wafer thin and that they are in no position to absorb increases in chipboard prices – a claim backed up by a chipboard manufacturer sympathetic to the plight of some of his own distributor customers. ‘The intention is not to push the problem onto distributors, we want to help them to achieve their price increases in the market,’ he said.
These financial difficulties are not preventing all chipboard firms from investing, however; one UK manufacturing contact said his firm had invested ‘millions’ in improving production processes over the past six months. The Budget announcement of an extension of research and development tax credits to large firms, as well as small, could improve the climate for investment, though the precise mechanism and rate of credit have yet to be announced.
Budget response
The full impact of the Budget on the chipboard industry is still being analysed. However, as the contact pointed out, there is a chance – albeit slim – that the chancellor’s well-laid plans could be rendered redundant by the impending election. For this reason, he said, the spending plans of many companies will remain on hold, whatever the Budget’s implications, until the government goes to the polls.
‘I think until we have had the election, there are going to be an awful lot of companies and an awful lot of organisations who are going to hold fire on their major investments, unless they have already committed to a programme. In terms of manufacturing, there are indications that the Budget will not really have an impact on manufac-turers,’ he said.
