The summer is never an easy period to negotiate but most chipboard producers appear to have arrived at autumn with their stocks under reasonable control. Order levels seem to have shown some improvement since the end of the summer holiday period, although many UK companies involved in the chipboard business had clearly been hoping for a sharper seasonal upturn – especially as cost pressures are continuing to bear down on them.
To a large extent, headline chipboard prices held firm over the summer months despite evidence of what some contacts described as “tactical pricing”. A large proportion of the producers contacted this week were hopeful that an opportunity would emerge in the fourth quarter to move up their prices, with several going on to insist that they would be looking for increases sufficient only to cover additional costs.
Against a backdrop of flattish demand for chipboard, “planned and unplanned” maintenance was a key factor in helping producers to manage their summer stock levels. “We were down for just over a week in the summer and so our stocks reduced dramatically,” said a leading domestic chipboard manufacturer. The company had found itself in the unusual position of recording lead times at the start of August and had not felt pressured to offer any summer bargains.
Check on inventory levels
Another major manufacturer confirmed that his own company had stopped its lines for a time during the summer, with the result that inventory levels had been kept in check. “Stocks are more comfortable than this time last year – although last year there were more shortages,” he said. “We have not seen the normal increase in seasonal demand [for the autumn] but orders have started to pick up.”
For a variety of reasons, several chipboard producers were saying they had nothing left to sell this week. For example, a spokesperson for a chipboard manufacturer which is based on the continent said : “We’ve been very busy and the company is sold out, so there is not much coming into the UK at low prices.”
Another producer claimed to have sold out of plain chipboard because available volumes had been limited by the company’s decision to focus on added-value products. He confirmed that this approach had helped his firm to open the door to the introduction of gradual price increases during the early part of the year, before adding that prices had suffered “a slight dip” during the summer.
According to another manufacturer with a major presence in the UK, record production had been more than counterbalanced by record sales with the result that, for example, standard board and MFC were now available on, respectively, two- and three-week lead times. Its T&G flooring arm was “very busy” whereas MFC demand from within the domestic furniture industry had been hit by strong competition from Chinese imports. “2005 was quieter than expected in the first half but there has been something of a recovery in the second half,” he said. “We have been able to sell what we have made.”
Overall, the troubles of some key consuming industries and the generally gloomier tone to latest UK economic news were being blamed this week for a greater sense of caution in the market place and for flatter than expected demand for this time of year. For example, it was felt that the announcement from B&Q of plans to close more than 20 stores in the UK would have a damaging ripple effect on business and consumer confidence. In addition, several contacts said that the decision to drop interest rates had been taken far too late and had had very little beneficial effect on trading conditions.
|
“With capacity being taken out in Europe and nobody investing in new capacity, I think there could be some supply issues next year – possibly by the spring” |
Curate’s egg
Current market conditions appear to warrant the curate’s egg tag. While housebuilding in general is not providing T&G flooring producers with the levels of business they had been anticipating earlier in the year, demand from the social housing sector had been comparatively good. And while the standard kitchen sector was not affording major chipboard sales opportunities, the higher-quality end of the kitchen market was proving relatively busy, TTJ was told this week.
Amid these variable conditions, domestic chipboard producers were not without their problems. One expressed concern, for example, that recent fluctuations in the sterling/US dollar exchange rate would encourage an increased flow of imports of, in particular, raw board and MFC. However, the major headache for manufacturers remains rising costs across almost every aspect of their business. One manufacturer was “very concerned” at the prospect of a 31% hike in his electricity costs from October – an increase which comes directly on top of a 50% increase at the same point last year. Another chipboard producer said that on top of a forthcoming energy cost increase of approaching 30%, his business was being impacted by the severe impact of oil prices on its petrochemical-based resin costs. Price increases would be most welcomed among those companies producing P5 material, he added, because of the material’s higher resin content.
Of course, rising oil prices have also had a major impact on the chipboard industry’s transport costs. However, one domestic producer said : “Chipboard is a low-cost bulk item and so high transport costs could play into our hands by decreasing imports.” Another producer spokesperson felt the argument in favour of higher chipboard prices should be easy to convey to a customer base facing similar issues. “All transport companies are demanding surcharges and so this must filter through at some point,” he said.
After having maintained relatively stable prices over the summer months, there is general agreement among the chipboard manufacturing base that increases will have to be implemented in the near future simply to alleviate the pressure of these rising costs. “We have seen such huge cost increases in the industry that we will be forced to put prices up whether we want to or not,” said a leading industry figure. Another major producer said: “We have no price increases planned at the moment but it is something that is going to have to be looked at.” If sales continued to pick up, he saw scope for the introduction of increases by the end October or early November. Another top producer made similar comments: “We have no option but to consider price increases when we get increased costs. We haven’t introduced any recently but we may look for more in the last two or three months of the year.”
Optimistic view
To leave the last word with the optimists, one leading industry player pointed out that the chipboard market could change very quickly if demand began to show real signs of improvement. “With capacity being taken out in Europe and nobody investing in new capacity, I think there could be some supply issues next year – possibly by the spring,” he said.
As for latest news, Egger UK’s £100m investment at its Hexham production facility recently cleared another planning hurdle, leaving the company management team ever more hopeful that construction work will begin on site by spring of next year. The project will involve the installation of a ContiRoll continuous production line which will help carry annual capacity at Hexham beyond its current 440,000m3. As mentioned previously, the company intends to maintain its focus on P2 and P5 material if the investment is given the thumbs-up.
Meanwhile, a further announcement is expected shortly on the proposed acquisition by Pfleiderer AG of the engineered wood operations of Kunz Group. A statement issued by Pfleiderer in mid-July pointed out that “alongside other conditions, the transaction requires the approval by the anti-trust authorities for the markets concerned”.
