With chipboard supply said to be “dramatically” short for the time of year, leading domestic producers have looked to maintain upward price progress and are warning customers to expect further increases before the end of the summer.

One manufacturer said that its prices for melamine-faced chipboard (MFC) were scheduled to rise by between 5-15% with effect from July 1. The move was likely to stretch the market, it was acknowledged, but represented an essential step forward in the bid to raise MFC prices from their disappointingly low levels of recent times. The same producer introduced a 10% increase on its raw chipboard prices during June and has indicated that further price hikes are likely to be sanctioned for either late August or early September.

According to another domestic producer, further price increases are planned for the beginning of August. The company’s raw board and MFC prices had been raised significantly in the first half of the year – although mainly to counter substantially higher timber, chemical and energy costs, it was confirmed.

And despite flooring market conditions being described as “not particularly buoyant”, at least one company has succeeded in introducing significant price increases in this product area over recent weeks.

Price rises surprise some

Several non-manufacturer contacts were surprised to hear that producers were scheduling more increases for the summer months. Some had anticipated that the next round of hikes would coincide with the introduction of new energy contracts towards the back end of the autumn. However, there is undoubtedly a widespread appreciation of the cost and supply pressures facing domestic chipboard manufacturers, as well as a preference for the introduction of price increases on a “little and often” basis.

Normally, producers’ worries during the summer months would revolve around a holiday-induced dip in demand. This year, the reverse is true: manufacturers are concerned that they will not have sufficient capacity available to satisfy decent demand across the board. One sales source said this week: “We have a full order book and have sold everything we can make – so it’s time to stop trying to sell more and to go on holiday.”

A spokesperson for a domestic producer which has scheduled a one-week maintenance shutdown in July said that, despite its best planning efforts, there was still a question mark hanging over availability for the summer. Its lead times were six to eight weeks and stocks at low levels. “We can’t even look at new customers,”he said. “We expect to see a real shortage of supply – we can’t make enough of it.”

Another producer facing a five-day shutdown in July is Sonae at Knowsley. However, this will have the dual purpose of effecting routine maintenance and of speeding up the press. A spokesperson for the company said: “We have chosen our customer base very carefully. We look for growing companies with a strong financial background to support us in return for a secure supply.” By investing money to ease bottlenecks in the production process, the company was effectively creating additional supply at a time of particular tightness in the market.

Lead times extend

Among domestic producers, lead times have moved out significantly – not only for raw board but also for added-value products such as MFC. With demand comparatively strong and overall production capacity limited, there is evidence that some manufacturers are tipping their production schedules in favour of added-value products in order to maximise their returns. At the same time, it has been said that supply shortages and price increases are giving a “false reading” in relation to the UK furniture industry which, to general agreement, has suffered badly in the first half of the year and is deemed unlikely to see any real improvement in its fortunes throughout the rest of the year.

&#8220We are still in a negative position. The price increases really only replace cost increases that have been higher than expected. We are treading water”

Several reasons explain the high activity levels among domestic chipboard producers at what is normally one of the quieter periods of the year. While demand in the UK is described as steady to firm, significantly stronger consumption growth on mainland Europe – and particularly in central Europe – has been keeping Continental manufacturers busy. At the same time, transport costs to the UK have suffered a substantial increase. These two factors have meant less material being made available for export to the UK, thereby creating more market opportunities for domestic producers.

Overseas interest

Enquiries for chipboard have been reaching UK producers from far afield – including from the US and Canada. In the main, however, the home manufacturers are focusing on satisfying domestic requirements. “This

situation has been developing since the start of the year,” said one producer. “We have had full order books for the whole of the year and we are turning business away for sure.” And some of those disappointed, prospective buyers have been household names, he said.

Although significant price increases have been implemented, chipboard producers have been at pains to reject any suggestion of profiteering. A senior figure at one of the domestic producers said: “Nobody is getting rich out of making board products.” Another said: “We are still in a negative position. The price increases really only replace cost increases that have been higher than expected. We are treading water.” Electricity costs were “frightening”, while resin prices were continuing on their upward march. At the same time, ever tougher competition from the biofuels sector was pushing up the cost of raw materials to a dramatic extent. The UK government’s policy of promoting renewable energy sources was effectively undermining established markets for this raw material, several contacts complained this week.

The European Panel Federation (EPF) agrees that one of the main reasons behind significant increases in wood costs across Europe is that authorities are continuing to promote the use of wood as a fuel for the production of “green” energy. The organisation claims this “short-sighted” policy jeopardises the future of all wood-based industries and is urging governments to shift their focus from supporting bioenergy production to “developing actions to mobilise wood”. EPF is also “strongly advocating the recognition of wood-based products as carbon stores”.

These comments from EPF coincide with the publication of the organisation’s Annual Report for 2005-2006. This states that European chipboard production climbed 2.9% to 35.477 million m3 last year while apparent consumption grew 4.3% to 32.588 million m3. Germany was easily Europe’s largest producer on 9.45 million m3 – an increase of 4.4% compared to 2004. Both Turkey and Estonia increased their chipboard production by around 20% last year, while UK output slipped 3.4% lower from 2.356 million m3 to 2.276 million m3. However, this figure was overshadowed by the striking 10.5% dip in UK consumption from 3.366 million m3 to 3.014 million m3.

Furniture applications

As for EUrope-wide applications, the EPF report reveals that the furniture industry absorbed 42% of all chipboard last year, with bathroom/kitchen furniture and office furniture accounting for a further 8% and 4% respectively. The building industry consumed 23% of all chipboard and flooring another 5%. Six per cent of EU production was exported beyond its borders.

UK imports of chipboard tumbled 15.2% from 1.104 million m3 in 2004 to 936,000m3 last year whereas exports surged 110.6% from an admittedly low base of 94,000m3 to 198,000m3. UK production capacity remained at 2.735 million m3 in 2005 and, according to EPF forecasts, is unlikely to change during the course of this year. Europe-wide, chipboard production capacity fell from 36.05 million m3 in 2004 to 35.839 million m3 last year, but is expected to jump to 36.559 million m3 in 2006 on the back of expansions in Estonia, Romania and Slovenia.

A lack of capacity growth over recent years – and, indeed, a succession of mill and machine closures – has undoubtedly contributed to the current market tightness.