‘There is only a certain amount of business out there and right now it is totally covered.’ This statement from a chipboard producer is broadly representative of sentiment that seems to be rife throughout the UK panel products industry as the summer period draws to an end.

Demand for chipboard has been subdued in the period since the last report (TTJ July 14). Although there have been star performers that have bucked the trend in some product areas, it is generally a very tough market, according to most manufacturing contacts. There is widespread hope, however, that things will improve.

While it could hardly be described as booming, the new-build flooring market, which chipboard dominates, has been one of the few areas of real activity over the summer. Suppliers to the sector report that business has been ‘reasonable’ and ‘steady’.

Manufacturers of specialist chipboard panels, such as moisture-resistant and fire-retardant grades, as well as those able to produce board in a variety of different sizes, are particularly confident that they will be able to ‘ride out the storm’ of poor demand. ‘We are able to do quite a lot of the cut-size business, which is a value-added product, so we are just going to concentrate on that until all the standard prices come up to a level with which we are comfortable,’ said a spokesperson for one such manufacturer.

Describing the chipboard market as ‘difficult’, another contact said he had recently looked back at the prices at which his firm had been offering melamine-faced chipboard in 1992 and discovered that they are now virtually half what they were. ‘You might be making the same gross margin but the pound has halved since then,’ he said. ‘I don’t think any of the UK manufacturers are having such an easy time. They are being squeezed between rising raw material prices and a very competitive market.’

Service needs

Nevertheless, while the MFC sector remains competitive, the contact believes his firm will maintain and even grow its share of the market, thanks to investment and ‘the way we orientate our business’. ‘We’ve made investments in the branches, the infrastructure and the IT behind it, in order to serve what we believe to be the new market requirement, which is service,’ he said.

‘The investment enables us to deliver a broad profile of products to a market that wants instant availability and we are gaining some market share because of that investment. If we weren’t giving customers more for their pound, in terms of service and range, then we would be more concerned.’

An apparent reluctance by UK consumers to invest in furniture in recent months is having an effect on chipboard demand from furniture manufacturers. The strong pound also means many of these manufacturers are restrained from exporting, while being in the invidious position of having to ‘sit back and watch cut-price imports being sucked into Britain’.

‘The furniture market is struggling against very difficult circumstances,’ said one supplier. ‘It is keeping going but it’s tough.’ He mentioned the shop-fitting market as one relatively ‘bright’ area of activity for his firm but added that nowhere in the market is business exceptional. ‘Niche markets that we go into are important and continue to do well but we are waiting for better times.’

Panel stocks held by many UK manufacturers are relatively high at the moment, primarily because companies have not scheduled proper breaks in production at a time of year when market demand is traditionally weaker, one contributor reports. The result is that, unlike their Continental counterparts, which are managing to maintain firm prices, UK companies are having to cut prices to shift product. ‘The English market does need to take a holiday,’ said the contact. ‘[European companies] are not reducing prices at all – they will wait until the market catches them up.’

He believes cutting prices is a short-sighted strategy. ‘As soon as they have got rid of the stocks that they’ve made over the holiday period, when they had nowhere to sell them, they’ll put their prices up too,’ he predicted.

Demand improvement

When prices do eventually rise, there is every chance that they will stick, as many contacts say they expect to see an improvement in demand during the autumn. However, in the light of significant additions to the UK’s chipboard output capacity this year and next, one contributor berated some manufacturers for swamping the market with product at a time when delicate price negotiations are under way. ‘When people talk of expansion, I think why? You are only going to have to lower your prices to flood the market,’ he said.

But another panel industry contact outlined the difficulties in accounting for short-term fluctuations in the market when making key, longer-term decisions about the direction of a modern manufacturing business. It is impossible to be entirely accurate with forecasts, he implied, but companies still have to make educated guesses about what the market may be like in future. ‘Planning and budgeting processes are made difficult by the fact that we could be in a position where we make plans to do a certain amount of product next year, for example, and then all of a sudden those plans are scuppered by a strong pound drawing in cheap imports. The continuing fluctuation of prices due to currency makes the market difficult [to predict] as well.’

In terms of forward planning, the contact said he is now factoring a probable downturn in the European economy into his calculations. ‘We are a little bit worried about the possible knock-on effects of a slowdown in the European economy,’ he said. ‘Traditionally, some European manufacturers treat the UK as a dumping ground and that is something else that affects our ability to take our products to market. I think we are going to run faster and harder, not for more value, but to maintain our place in the market.’

Despite this prospect, most contributors report that they are at least confident of an improvement in demand in the short-term. ‘We are reasonably confident,’ commented one. ‘Traditionally, on the way downhill to Christmas, things do pick-up slightly, before the lull at the beginning of the following year.’

Weakening pound

There is also evidence that a major negative influence on the market, the strong pound, may finally be starting to wane. A number of contacts report easing conditions with the slight weakening of the currency over the past few weeks, . They believe this will give UK chipboard manufacturers greater leeway to increase prices on some of their raw material products, some of which currently ‘appear to be traded at cost or even less’.

In comparison with other panel products, chipboard does not seem to be faring too badly in terms of its popularity or market share. With the possible exception of OSB, sales of which one contact insisted are ‘well-up’ this year, plywood and MDF sales also apparently reflect the poor demand evident in the chipboard sector. ‘Business has plateaued in many areas,’ he said, although particleboard flooring into the new house market is ‘good and strong’.

Even MDF, with all its media exposure, is suffering. ‘MDF is on all the TV programmes but that’s still not translating into sales,’ said one company.