At busy times, producers often argue that they would be able to sell far more if the volume was available to them. This certainly appears to be true of the chipboard sector at present, with UK manufacturers confirming that they are unable to satisfy all of the order enquiries landing on their desks.
A now-familiar warning was issued this week: “If you haven’t sorted out a chipboard supplier by now, you’re going to have a problem.” There are several reports of consumers walking away from price increases only to find that they cannot obtain a better quote elsewhere. But on deciding to accept the original quote, they discover that all or part of the material has already been sold elsewhere.
Producers have responded to supply tightness in a number of ways. For example, one of the leading domestic manufacturers confirmed that, in a bid to shorten “out-of-this-world” lead times, his company has been forced to impose a ceiling on sales to individual customers. In addition, overall production has been increased by the company’s decision to remove many of the smaller-run product sizes from its roster. “Over the last few months, we have taken out about a third of the sizes in our range because the market needs board and not specialities,” TTJ was told. “We need a simplification of the range of products we sell.”
Although delivery times to regular customers have been driven down, one contact commented: “We can’t grow a lot with new customers because we are more or less selling all that we make.” January proved to be yet another record month and strong sales momentum had been maintained in February, he added. On the same theme, other producers talked of “having to ration supplies” and, in one case, of “record low stock levels” equating to less than one week’s supply.
Sonae fire
For its part Sonae UK has been taking steps to “de-bottleneck” operations at Knowsley to maximise production capacity. However, a pump room fire last week has hampered progress. Production has been halted and is unlikely to recommence until mid-March, although the mill has enough stock to meet its supply commitments.
Prior to the fire, new measures had implemented had boosted monthly output at the plant from around 32,000m3 in the first three-quarters of 2005 to 37,000m3 in 2006 – equivalent to 444,000m3 for the year as a whole. A £3.5m investment programme in the early part of this year is expected to add a further 4,000m3 of monthly output via, for example, improvements to wood yard capacity and rate of feed to the press.
Such measures are helping to alleviate but not cure supply tightness. And, of course, one of the inevitable impacts of restricted supply and rising producer costs has been upward price movements. A straw poll of producers reveals that one of them introduced increases of 7-10% during January and is planning further hikes across the product range for March. In confirming that his company had introduced price increases of between 5-7% at the start of the year, another manufacturer spokesperson commented: “With the market so tight, we are going to see more increases.” These hikes were “imminent” and could be implemented “before the end of the first quarter”, he added. “We don’t have any stock to delay price increases.”
A third producer noted that it had staggered its price increases across the beginning of January and February, with raw board moving up 10-15% and melamine-faced chipboard (MFC) rising 7-8%. A spokesperson said that the next round of price increases would probably take place in the second quarter “depending on what happens to costs”.
From the chipboard producers’ perspective, the energy price spikes witnessed early last year have been thankfully absent so far this winter. However, some producers prefer to forward buy their energy in order to smooth out the impact of any massive fluctuations and to help maintain relatively stable sales prices for the benefit of their customers’ budgets.
Meanwhile, timber prices have continued to rise over recent months, with one domestic chipboard producer estimating a 5% increase for his own operation since the start of the year. While timber availability in the UK was described this week as “reasonable”, chipboard producers in many parts of the Continent are still struggling to match supply to production needs. In Germany, for example, chipboard producers are being forced to compete for supplies with the wood-based fuel pellet and firewood sectors.
To top up supply on the Continent, it is understood that timber is being exported from the UK – a move which, it is suggested, “will only accelerate timber price increases” on this side of the Channel. Furthermore, domestic producers are not completely comfortable, with timber availability prospects for later in the year. One prominent producer figure commented: “Supply is a concern – we’re not secure for the second half [of 2007].”
Continental prices
The hope is that, as the year progresses, drier weather will assist logging activities across Europe and reduce the energy required to achieve the required moisture levels in the chips. For the moment, however, tight raw material supply, coupled with good demand for finished product, has led to escalating chipboard prices on the Continent. Despite the higher prices implemented in the UK, increases on mainland Europe have more than kept pace, creating little incentive for Continental mills to ship into the UK. A UK-based spokesperson for an overseas producer noted this week: “We are not quoting prices for chipboard – the lead times are too long.”
With so much attention focused on supply recently, UK manufacturers were keen to emphasise the strength of demand for many chipboard products. All reported significantly improved demand for MFC, with one producer spokesperson describing the product as – “quite unexpectedly” – the “big star of the last six months”; he estimated his company’s year-on-year sales growth at 25%. Another domestic producer described the MFC market as “more buoyant than we’ve seen for some time”, possibly because of “supply difficulties from outside the UK” rather than any major upturn in demand from the UK furniture sector.
Reasonable domestic demand was also reported for T&G flooring although several producers said that it remained substantially under-valued in relation to other products and that customers should be anticipating significant price increases soon. One company said the product’s price was up to 25% below where it should be.
Ending where we began with the issue of tight supply, one of the new capacity highlights this year will be the completion of Egger UK’s £110m development of its Hexham facility.
Latest feedback from the company indicates that the generally mild winter has enabled work to continue apace on a project which involves the installation of a ContiRoll continuous production line and a biomass facility. The site at Hexham is also being revamped to improve efficiencies, for example, in relation to vehicle movements.
According to a company spokesperson, the bulk of the work has now been completed and the first boards are likely to come off the line by the end of April. Following a subsequent wet commissioning period lasting several months, commercial production on the new line looks set to commence by late summer or early autumn.
Other industry sources suggested this week that, even when the revamped Egger facility comes on stream, there is a strong possibility that the volume of chipboard available to the domestic market will be lower than a year ago owing to capacity closures and shrinking imports.
