Summary
- The chipboard market has been busy over the summer.
- Manufacturers raised prices in June and July and further rises are expected.
- Demand has slowed slightly, giving producers time to build stocks.
- Demand for T&G flooring has been strong.
- UK chipboard imports were down to 840,000m3 last year.
The onset of the summer holiday and shutdown season may have taken some of the heat out of the UK chipboard market but prices are showing little sign of weakness. After the frenzied activity of earlier months, the summer of 2007 has delivered a market described by one industry expert as “satisfyingly busy”.
“We have seen no summer deals – there has been no softening of prices at all,” said a senior spokesperson for one of the leading domestic producers. And asked whether price reductions would become a realistic possibility as the summer progressed, he insisted: “We are going nowhere near there – prices won’t be going down.” And similarly bullish sentiments were expressed by other leading producer figures, even though all acknowledged that order levels had eased over recent weeks.
Running contrary to the above, a minority of contacts contended that the odd deal has been available on a limited number of lots. However, most chipboard sellers confirmed this week that they were “under no huge pressure to put prices down”, not least because consumers were keen to maintain the higher value tied up in their stocks. Buyers’ key focus seems to have remained on securing a consistency of supply rather than on price.
Price no deterrent
Leading producers on the UK market introduced price increases of varying scale during June and July, while one manufacturer confirmed that a 7-9% increase on certain thicknesses of flooring was due to take effect on August 1. However, these generally higher prices do not appear to have deterred customers from placing business even during the traditionally quieter summer months. “We are still sold out – we have a full order book for July and August,” one of the chipboard majors confirmed.
The slower rate of orders, which is attributed to mortgage rate increases as well as to the arrival of the summer holiday period, has led to a reduction in previously extensive lead times and allowed some operators to relax their strict sales approach to some degree. “In the summer, not everyone takes the volumes they normally take, and so more has been available for other customers,” noted one producer who had been operating a largely allocation-based system of sales leading up to the summer.
Indeed, producers are regarding the recent slowing of orders as something of a positive because they now find themselves in a position to build stocks in anticipation of busier times ahead. A senior industry figure said that low stock levels had left his company with a “hand-to-mouth” stock position over recent months. “We are hoping that, by the end of August, we will have stocks ahead of the rush,” he said.
To take advantage of the recent buoyant demand for chipboard, another domestic producer had chosen to defer a planned week-long, maintenance-related shutdown until September. “So we need to build stocks ahead of that,” TTJ was told. However, the same contact did not rule out the possible re-emergence of extremely tight supply and shortages over the autumn and winter. Another expert suggested that the chipboard market was currently “in the eye of the storm” and that raw material price increases slated for the fourth quarter have the potential to drive up costs by 5-8%.
T&G flooring in demand
Demand for melamine-faced chipboard has been holding relatively steady, while the market for T&G flooring is still reasonably strong for the time of year. One leading producer claimed that his company’s T&G sales were at “record” levels although another argued that, despite its recent price recovery, T&G was still valued only at 1994 levels. Despite such observations, manufacturers broadly agree that chipboard prices are set for a period of stability and are unlikely to rise again before the end of September or early October. This is seen by the producer sector as providing an opportunity for distributors and other downstream chipboard buyers to assimilate the price increases of earlier months.
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“There is still huge competition for timber from the biomass sector and the European mainland is still struggling for raw material” |
Several producers also warned that prices might become subject to an earlier review in the event of “major supply issues”. One commented: “There is still huge competition for timber from the biomass sector and the European mainland is still struggling for raw material.” According to another producer, his company had been able to secure a consistent supply of raw material but only as a result of being prepared to pay ever-higher prices.
At the latest joint annual general meeting of the European Panel Federation (EPF) and the European Federation of the Plywood Industry (FEIC), which was convened in late June, fears were expressed about increasing production costs and the possibility of wood supply constraints – and possible shortages – after the summer. To this end, the two organisations are co-operating with governments at the level of the United Nations‘ Economic Commission for Europe (UNECE) and the European Commission to measure current and future wood availability; initial results from this study are expected in October.
The EPF also reported widespread producer satisfaction with market conditions during 2006 and the first half of 2007. Thanks to improved economic conditions and to higher levels of activity within the construction sector in particular, chipboard production increased by 4% last year to 37.2 million m3 while demand surged 6.2% to 34 million m3.
According to EPF figures, UK imports of chipboard sustained a further significant fall in 2006. Having stood at 1.1 million m3 as recently as 2004, incoming volumes slid to 936,000m3 in 2005 and to 840,000m3 last year. Experts attribute this continuing downward trend to the higher transport costs associated with exporting to the UK and to the prices obtainable in this market which are generally around 10% lower than those prevailing in Continental Europe. With many markets in mainland Europe also experiencing healthy demand for chipboard, there is clearly little incentive to ship to the UK. That said, there were reports this week that some German chipboard producers are opting to extend their summer shutdown periods in the face of a reduced demand.
Of course, UK producers have been taking action to boost the availability of domestically-made chipboard. According to several independent contacts, the start-up of Egger UK’s new 48m-long, 2.6m-wide ContiRoll chipboard press has helped to reduce the number of “panic-order enquiries” that had characterised the market place in earlier months.
Egger investment
In a recent statement updating its £110m investment at Hexham, Egger UK confirmed that the new press had produced its first board in mid-April “and has quickly gone onto 24/7 production”, with full commissioning of the new line and supporting infrastructure due by September. Bob Livesey, joint managing director (commercial), said the second phase “now being entered into” would incorporate the decommissioning of old presses, demolition of old buildings, erection of new buildings and a restructuring of the existing site.
The Hexham plant specialises in furniture-grade chipboard, melamine-faced chipboard and Weyroc – a collection of tongued and grooved chipboard products used in the construction industry.
Sonae also expects to boost domestic supply by continuing with its productivity enhancement measures at Knowsley. Having lost production to a fire in the plant room earlier this year, the facility achieved a record monthly output of 44,000m3 in April and has since established this as “a norm”, according to a senior spokesperson. A similar level of production was anticipated for July and the factory management was “chasing a monthly target of 50,000m3 by mid-2008 at the latest”, he added.
But as one contact asserted this week: “The underlying issue of tight supply has not gone away.”
