With chipboard supplies having been unseasonally short during the summer, it will come as little surprise to the sector that the autumn kicked off with evidence of “over-ordering” – or “panic buying”, as many would prefer to call it. Indeed, an increasing number of customers have been approaching chipboard manufacturers in a bid to conclude strategic, long-term deals so as better to guarantee their forward supplies.

Asked whether supply of chipboard was more difficult in some specifications than in others, one leading producer figure responded simply: “Chipboard is short – full stop.” The same contact went on to reveal that his company was operating on lead times of “up to three months” with regard to raw chipboard and on “upwards of eight weeks” for some items of melamine-faced material (MFC). Despite record production levels within the company, standard items of MFC were attracting lead times of around two weeks. “I have never known it like this,” he declared. “We are as busy as ever before.”

Having noted that his company’s raw chipboard and MFC prices had been moved up by between 10-15% since the middle of summer, the same producer said: “It’s a good market in the UK at the moment. It’s busy enough to absorb the higher prices.” And he underlined: “There will be more price increases on chipboard. It’s an ongoing process.”

Allocation basis

Similar sentiments were expressed by another prominent producer who estimated raw board lead times at around 10 weeks. The company was supplying agreed volumes to established customers on an allocation basis – “but we are still getting enquiries from everywhere”, he added. As for MFC, the average lead time was put at nearer six weeks. Even those companies receiving material on allocation were finding difficulty in maintaining an adequate inward flow of chipboard, he said.

Having pointed to healthy demand for both MFC and flooring grade chipboard, another domestic producer confirmed that his firm had raised its flooring prices by around 5% at the start of August. “There may well be more to come,” said a senior spokesperson for the company. And as a general point, he added: “UK chipboard manufacturers are very short of material.”

Another producer contact reported that his firm had “stopped taking orders” in the face of 12-week lead times on raw board, while supply of MFC “has been restricted to some customers”. The issue for the remainder of the year was not one of price but of “when to start offering material again”.

Flooring producers are witnessing continuing strength in the construction market while suppliers into the furniture market have been reporting a traditional, post-summer upturn in orders from an industry that has long been mired in talk of crisis. A chipboard producer suggested furniture sector demand was currently “relatively robust”, particularly from the smaller to medium-sized manufacturers.

As reported previously, the current shortage of chipboard available to the UK market is not solely the result of decent home demand. Other key factors include: a reduction in chipboard capacity across Europe, most recently evidenced by the announced decommissioning of the old chipboard line at Norbord‘s South Molton plant; and a significant, long-term fall in UK imports of chipboard because producers elsewhere in Europe are preoccupied with satisfying demand closer to home. “Continental producers are doing the odd deal – but it really is only the odd deal,” TTJ was told this week.

Methanol costs

In addition to the above factors, unrelenting cost pressures have also provided chipboard producers with an incentive to maintain upward price momentum. The latest shock has come in the form of a massive hike in the cost of methanol, which in turn has sparked a substantial increase in resin prices for the fourth quarter. The methanol price is understood to have soared 70% higher in the space of two months, owing to a worldwide shortage created by technical failures at a couple of producing plants.

At the same time, of course, chipboard producers have been forced to grapple with the usual suspects of higher energy and raw material costs. A senior spokesperson for one of the leading domestic chipboard suppliers reported a 20% increase in the company’s electricity contract price for the year, starting this month; this comes on top of an 80% increase in the previous 18 months.

Competition from the biomass sector has also led to upward price pressure on chipboard producers’ timber costs, with one contact pointing to rumours of a further 20%-plus increase in raw wood costs before the end of the year. “The energy producing industry has to use renewable resources and that will hit availability of timber to us,” it was noted. “We are already starting to see the impact.” Producers in Continental Europe are experiencing similar difficulties in securing their raw material supply as energy companies offer keen competition for what would previously have been destined for the chipboard industry.

Transport capacity

Another availability issue to emerge strongly over the latter part of the summer surrounds transport. In line with businesses across western Europe, several domestic chipboard companies confirmed problems in sourcing transport capacity. Increases in diesel costs have put growing pressure on transport companies, to the extent that many hauliers – notably smaller operators – have been forced out of the business. With overall capacity thus trimmed, the remaining hauliers have been focusing on moving those goods which offer them the best strategic rewards. One contact said of transport availability: “It’s not about price – you just can’t source it.”

As we head into the fourth quarter of 2006, the trade has mixed feelings about the year to date. Some describe chipboard as a dynamic market that has been playing catch-up in value terms – a positive development that has been particularly long-awaited for MFC.

However, others point to the fact that higher price levels have yet to be reflected in overall profitability. One producer commented: “It’s been a good year for moving the market forward and for getting real value into particleboard, but it’s been very disappointing with cost increases.” He also underlined that, while most buyers understood the need for producers to raise their prices, regard was also having to be paid to “the ability of the customer to pay”. Nevertheless, he remained confident that these largely positive market conditions would persist into 2007.

Combining all of the above factors with the limited new capacity emerging in the chipboard market, buyers can expect extended lead times and substantially higher prices well into the future, according to a wood panel expert. He went on to predict that value-adding and flooring grade chipboard “will drive the market”.

Furthermore, with all other panel products experiencing significant price progression over recent times, chipboard is widely deemed to be unlikely to face widespread substitution.

Hornitex acquisition

News-wise, Portugal’s Sonae Industria Group has completed the acquisition of Germany-based Hornitex, which produces chipboard at three plants – in Horn-Bad Meinberg, Duisburg and Beeskow. Sonae has confirmed that it is switching MFC production using Hornitex decors to its plant at Knowsley in the UK.

Staying with the Knowsley plant, Sonae said this week that work carried out during a five-day maintenance shutdown in July had been successful in speeding up the press and, as a consequence, in boosting productivity through the plant by “around 8-10%”. But in an allusion to the current tightness of supply, a senior spokesperson added: “We can still sell every cubic metre.”