As any member of the UK timber industry will happily testify, optimism present at the start of a new year can often disappear without trace before the first quarter is through. However, the high hopes carried into 2004 by the chipboard sector have yet to be dented; indeed, the talk in early May has been of good demand in relation to available supply, extended lead times and broad scope for further price increases.

Some sources even expressed disappointment this week that UK prices had not moved up faster, while a 15% price gain for 2004 as a whole was deemed “by no means impossible”.

The generally upbeat tone of market experts was captured by the comment: “The chipboard price can only go one way and we are not expecting to see any summer sales this year. I don’t see any reason why chipboard prices should go backwards – and it has been a long time since we have been able to say that.”

The fourth quarter of 2003 brought chipboard price rises varying from 2.5% all the way up to 10%, and this year has already witnessed one – or for some companies, two – new increases. Again, the scale of those rises has differed according to a number of factors, among them material type. So while P1, P2 and T&G prices appear to have advanced by anything between 5-10% during the first quarter, flooring and melamine-faced chipboard have enjoyed smaller gains. In fact, some firms claim that, so far in 2004, it has proved virtually impossible to achieve any increases at all in these two product areas.

So while many producers have concentrated on value-added chipboard products, price increases have started at the raw board end of the market and have been slow to feed up through the system. “There has been a domino effect,”‘ said one expert, “but it has been slow and has yet to reach all areas of the market.”

Further rise

Focusing first on developments in the raw board sector, a leading spokesperson for one of the domestic producers confirmed that his company would be looking to push up prices by a further 3-4% in early June if the market stayed strong, he said. “We are working to a four-week lead time and we have strong orders through to the end of June, so there will be no deals this summer.” Current conditions have given good reason to believe that the UK chipboard market could remain strong at least until the end of the year, he added.

Elsewhere, it was suggested that mills are being “very selective in the product sizes and thickness they are offering to the market”, and this is leading to availability problems in certain areas. For example, supply of 6ft wide raw board was described as particularly difficult to source and “likely to remain so”. Indeed, some producers were willing to supply certain materials only if orders stretched to several loads. According to one domestic player, who hailed the raw board market as “very buoyant”, his company was having to restrict orders for P1 chipboard to fit in with other areas of production and the resultant tightening of availability had given scope for more attractive prices. “We have more or less allocated raw board production to key accounts,” he said.

Part of the justification for this deep-seated confidence lies in the lack of raw board imports coming into the UK. In general, Continental producers are busily engaged in satisfying not only their own domestic markets but also healthy demand from eastern Europe and from as far afield as the US and China. Even the giant German market, which has languished for so long, appears to have come back to life.

Prices on the Continent seem to be more attractive than those in the UK – for example, prices in France and Spain are claimed to have risen by as much as 20% in recent months. As a consequence, there is little incentive for mainland European mills to commit too much material to the UK market.

Lead times

&#8220I don’t see any reason why chipboard prices should go backwards – and it has been a long time since we have been able to say that”

The lead times quoted by mills on the European mainland appear to vary between three and six weeks. A UK representative of one of mainland Europe’s most prominent producers suggested that his own company’s chipboard operations were “full to bursting”. And he added: “This is the first opportunity for decent prices in a long while so the mills are wasting no time in getting their prices out.” Once again, he stressed that UK price levels were some way short of being the most attractive to Continental producers.

To fully appreciate current market conditions it must be remembered that: an estimated 1 million m3 of western European chipboard capacity was lost during 2003; some other plants around Europe are said to be nearing the end of their useful lives; and there are few new plants on the drawing board to replace them. Given this context, it is easy to understand why lead times have lengthened and the supply situation has tightened despite no major upturn in domestic demand.

These conditions have allowed UK producers to inject some much-needed value into the raw board market, but several contacts were at pains to underline that the product is achieving little better than break-even in terms of financial returns. “UK producers lost money last year and they don’t want to keep on suffering,” one company said. “We are seeing rises in energy, timber and transportation costs so we have to keep pushing for further price increases.” Noting that major electricity increases were expected later this year and that wax emulsion prices had also undergone a marked rise, another source said: “I don’t think we have any option but to put up prices.”

Price momentum

Even those industry experts who do not foresee price increases ahead of the summer are reasonably confident of further forward price momentum later in the year, provided that mills continue to hold the line and resist the temptation to offer bargains during the traditional summer lull in buying activity. One source observed: “After the summer, we would expect some serious price increases unless something untoward happens.”

The market feedback relating to melamine faced chipboard is less bullish and recent price increases appear to have been limited to only a few percentage points at best. UK demand has continued to be “very fragmented”, with many buyers in the furniture sector, for example, opting to import components or finished products. Despite a number of high-profile business failures over the last year or so, large parts of the UK’s trimmed-down furniture industry are still reported to be very quiet.

Flooring sales

Meanwhile, recent flooring sales have equalled or even bettered expectations but the strength of competition in this market has restricted the opportunities for producers to raise prices. One of the domestic manufacturers reported that it had introduced two increases – one in January and the other in April – to achieve a combined rise of around 7%, but a senior spokesperson insisted: “It is still not at a high price – we were selling it for a lot more many years ago.” If lead times went out to three weeks or beyond, the company would be looking for a further price increase – irrespective of whether this came before, during or after the summer.

Another contact pointed to huge variations in recent flooring price increases depending upon whether sellers were tied into longer-term contracts or the quality required.

Yet again, some overseas suppliers appear to be enjoying the best of the market conditions, with one said to be “sold out” and operating on extended lead times on flooring products.