Not even the arrival of the summer holiday season has taken the new-found gloss off the chipboard market. Prices have continued to be firm, lead times have remained extended and supply has struggled to keep pace with demand in many instances. And while further price increases appear unlikely to be introduced ahead of the autumn, the underlying direction of the market is undoubtedly upwards.
In the UK, the general consensus is that raw chipboard prices have risen by between 12-15% since the start of the year, with the increase for T&G perhaps just shy of matching these percentages. As for flooring, price increases of up to 7.5% have been announced within the past few weeks, although other sellers have restricted the latest rise to nearer 2-3%. A flooring specialist commented: “We have seen a rapid increase in demand from UK housebuilders after a slow start to the year. We are busy and we don’t expect demand to slow too much in the summer.” The company was budgeting for a further small price increase for the autumn, he added.
Even at these elevated price levels, lead times on chipboard are said to be at a minimum of three weeks and as high as six to eight weeks in some instances. Once again, producers have been selective in what they have been offering to the market, with the result that certain specifications are proving more difficult to obtain within a short time span. Tight supply of 6ft wide board has become even more pronounced over the past couple of months.
One buyer summed up the situation: “It is difficult to get a fair range of specifications from just one manufacturer. We are having to trade with three or four companies to meet all of our needs.”
Despite the onset of summer, there had been no evidence to date of any seasonal bargains, he added. Another expert observed: “People have been spoiled in the past with next-day delivery but they are going to have to get used to extended lead times. The only growth in production in the near future is going to come from tweaking existing lines.”
Lost capacity
The loss of an estimated one million m3 of capacity from the European chipboard market over the past 18 months has been a major contributory factor to current market conditions. Some mills have shut down and others have trimmed production owing to financial pressures while, elsewhere, manufacturing licences have expired. Just as relevant to today’s market is the fact that a major, fresh injection of chipboard capacity is, by force, some time away.
“Chipboard prices had been so low for so long that any new plant is two to three years away – so the imbalance between supply and demand could well be here to stay,” observed one expert. Given that firms with money to invest might have other more palatable options within the timber industry, “it is possible this imbalance may never right itself”, he added.
On a positive supply note, the impact of a filter system replacement programme at the Kronospan factory in Chirk appears likely to be far less severe than had been anticipated earlier in the year. Work on the project had originally been scheduled to begin towards the summer; however, construction of the substrate was completed in April and entailed shutting a line for four days. The switch from the old to the new filter system is now scheduled to take place around December with the loss of, potentially, less than a single day of production. “It will have a minimal impact and will fit largely with our normal maintenance pattern,” TTJ was informed.
It is clear that current market conditions are not simply a supply-led phenomenon. Chipboard producers on the Continent are continuing to enjoy good demand from their own domestic markets and have therefore been less inclined to allocate substantial volumes to the UK where prices are still less attractive in general, especially once transport costs have been taken into account. Mills on mainland Europe are also understood to be fielding a healthy volume of furniture grade orders from more distant markets, such as the Middle East, China, the US and Russia.
According to one of the UK’s leading producers, his company has been focusing largely on satisfying domestic demand. “We are holding our sales volumes and at the same prices,” a senior spokesperson confirmed this week. Staggered price increases introduced since April had now been absorbed by the market and demand had remained strong, with the result that the company was anticipating the announcement of a further price increase of around 5% to take effect from the autumn, he added.
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“Our latest price increase was easier to achieve than earlier ones this year, which is encouraging because prices have still got a way to go. Chipboard is still a cheap material” |
The market has been so strong that “we have been turning down enquiries”, commented another leading UK supplier. Financial returns were still poor in relation to costs but at least the momentum remained upward, he noted.
Weak demand
UK demand has its weaker areas. For example, several contacts pointed to generally quiet demand from a furniture sector that has moved increasingly towards importing components. Also, orders for melamine-faced chipboard have been “more fragile” and price increases have been more limited than those introduced on other types of chipboard as a result.
“Given that the impact of petrochemical prices is greater on melamine-faced chipboard, it seems illogical that the prices haven’t gone up so much this year,” observed one contact. “Prices have risen slightly, but I would expect them to go up even more by September.”Overall, however, the tone adopted by UK chipboard analysts remains unmistakably upbeat.
“I would expect raw chipboard and T&G prices to gain 20% on the year as a whole,” stated one producer spokesperson. “I don’t see a change for chipboard – I see this strength continuing into next year.” It would take a slowdown in demand on the Continent to undermine the positive market conditions in the UK but no signs of this were apparent at present, he added.
Of course, holiday shutdowns tend to colour market conditions at this time of year. The representatives of one European mainland producer said that demand was so “manic” that his company had decided to reduce its annual maintenance shutdown period. And he went as far as to add that his company “could do with another plant as big as the one we have already got”.
Another representative for an overseas producer reported that his company was operating on a six-week lead time and that gaps in availability were appearing in certain areas. Price increases above the level of bunker surcharges had been obtained during the first half of the year and further rises were envisaged for the autumn. Any increases would depend to some extent on whether bargain prices emerged during the summer “but I am not convinced that this will happen,” he added.
Cheap material
Several contacts echoed concerns about the potential for summer offers to disturb a chipboard market that has recently received a welcome injection of value. However, it was also stressed that prices are still some way short of their historical highs and that most companies were looking to maintain or increase prices even at this traditionally more difficult time of year. One market expert commented: “Our latest price increase was easier to achieve than earlier ones this year, which is encouraging because prices have still got a way to go. Chipboard is still a cheap material.”
Looking at other market developments, Nexfor Inc’s panelboard business Norbord Inc is to buy the OSB and particleboard assets of Agglo NV of Genk, Belgium, subject to satisfying conditions including regulatory approval. The deal, which includes a 300,000m3 particleboard line built in 1991, is being seen as a further step towards rationalisation in the European panel products market.
