Leading domestic producers have reported reasonably resilient demand for their chipboard over much of the summer. At least a couple of the major UK production operations have implemented only scheduled maintenance shuts and have operated "flat out" for the rest of the time. One completed its short downtime period as planned in May, while the other took its scheduled time-out in the second half of August. According to the latter, stocks had been built up in advance to take account of the break for maintenance but inventory levels are expected to resume their normal pattern.
A domestic producer identified the education sector and shopfitting as sources of decent demand. Orders from the social housing arena have also "picked up" of late, he added, whereas demand from the building sector in general has been largely "flat" and is expected to remain so for the foreseeable future. A supplier of flooring grade chipboard said that demand from the housebuilding sector had been quiet in the second quarter of this year but had since improved. "I expect the second half of the year to be busier than the first half, but I still think the autumn and winter are going to be tough," he said. "The market and prices are very competitive. It all seems to hinge on who wants the order the most or who’s the most desperate."
A domestic chipboard producer was more optimistic. "I would expect the autumn to be active," he said. The same season last year fell short of expectations "but we are more hopeful this time round". Against this backdrop, his company is planning near-term price increases of between 3-7% in certain product areas. It was confirmed, for example, that the T&G price is scheduled to be raised in September – following on smartly from an increase earlier in the summer. And some positives are even being taken from the fact that raw board values have remained broadly unchanged since TTJ’s previous report (TTJ June 23/30). "Raw board prices have softened on the Continent but have held here," TTJ was told this week.
Mixed fortunes
A fellow producer reported that "low" demand in June had been followed by an improvement in July and August. However, he added, market developments have been mixed for the various forms of chipboard: demand for melamine-faced has been "very good" and bookings for T&G "alright", whereas raw board orders have been "mediocre". In light of these conditions, his company is considering the introduction of a price hike on its melamine-faced chipboard (MFC) either for September or, more probably, October. Having noted that any rise was likely to be of the order of 5%, he added: "There is some catching up for us to do on prices of MFC."
As ever, cost pressures are playing into the decision-making process for domestic chipboard producers. One of them pointed out that his resin bill had fallen recently – particularly in the case of urea – but was now threatening record levels once again, while his counterpart at another UK production operation described resin costs as "unpredictable". The latter added that energy costs are relatively high for the summer months, while pressure from the biomass sector has meant a continuation of the gradual increase in timber costs. "Cost pressures could push UK raw board prices higher in the fourth quarter," another producer said.
Even though more recent currency movements have helped to narrow the price advantage for UK chipboard producers over their Continental rivals, export volumes have continued at the higher levels established largely since the euro weakened against the pound several years ago. "The exchange rate isn’t helping as much as it was, but transport from the UK is still relatively cheap because of overcapacity," a producer told TTJ this week.
Exports up
Recently-released figures from the Timber Trade Federation illustrate this trend: UK chipboard exports were 58.4% up in the first five months of this year, soaring from 51,000m3 in January-May 2011 to 80,000m3 this time round.
As for chipboard heading in the opposite direction, UK imports are described as "low" and "applying very little pressure" to the market. The volumes arriving on these shores appear to be confined to Continent-based suppliers with an established presence on this side of the Channel.
In its latest results, Norbord reported that Europe’s panel markets continued to hold up well in the second quarter of this year "despite the backdrop of negative economic news". Average panel prices "were essentially flat" when compared with the previous three months while chipboard prices rose 3% year on year, it stated. However, the benefit derived from higher chipboard prices and lower raw material usage "was more than offset by higher raw material prices, higher supplies and maintenance costs, and lower sales volume".
Several days later at its annual press conference, fellow producer Egger offered a more positive assessment of market prospects, insisting that the group "expects turnover in its key sales markets to increase in the 2012/13 business year" despite a worsening of the overall economic situation and uncertainties resulting from the debt and euro crisis. "Based on the current high order volume, Egger expects to use its capacity fully at all production plants across its divisions in the 2012/13 business year," it was stated.
Meanwhile, it has been confirmed that the £9m lamination line added to Egger UK’s Hexham plant has been at full production since June. Over the summer months, however, the focus of attention has remained Sonae UK’s chipboard manufacturing and finishing plant at Knowsley, culminating in an announcement on July 27 from Sonae Industria in Portugal that the UK operation was to enter into consultations with employee and trade union representatives regarding the future of the Merseyside facility.
The same statement referred to "long delays to the reconstruction programme of the plant due to the difficulties in obtaining the necessary planning approvals following the fire that occurred in June 2011". It added: "This, coupled with the current economic climate and the downturn in the construction industry, have affected the viability of this plant."
And in Sonae Industria’s latest results package, the president of the executive committee, Belmiro de Azevedo, said that these above-mentioned factors had "led the plant to an unsustainable situation", with the financial review also alluding to "lower capacity utilisation and profitability problems" at Knowsley. However, Sonae Industria has been at pains to insist that "it is our intention to continue supplying the UK market".
A spokesperson for the Knowsley operation confirmed to TTJ this week that the consultation process duly began in early August, going on to note that "closure is one of the options but there are other options that need to be explored". The plant is continuing to produce and to finish board, it was added.
So if, following the consultation process, the decision were taken to remove the Knowsley plant from the production equation, where would this leave the UK market? Even though UK consumption is well below its peak levels at present, there would still be a significant gap between current domestic production and demand. According to a leading industry figure, the UK "will have to get its prices back on a par with European levels" in order to encourage an increased flow of chipboard into this country. However, he also acknowledged that some domestic manufacturers have not been running their chipboard lines at full capacity and so this would "give them an opportunity to ramp up".
Another market expert agreed that existing unused capacity could help to keep the UK market supplied. However, he added, the sums might become more difficult to reconcile if domestic consumption were to climb back towards peak levels.
