A new year has begun with UK chipboard capacity amounting to significantly less than current domestic consumption. Following the closure of Sonae UK’s plant at Knowsley in September last year, production capabilities in the UK have been trimmed to little more than 2 million m3 per year whereas annual usage equates to more than 2.6 million m3.
Furthermore, the volumes now supplied by the Sonae group to the UK market are understood to be well short of those produced when Knowsley was in operation, thus creating even more opportunities for other producers.
There is a danger of reaching the rather simplistic conclusion that imports from other Continental suppliers will readily fill this void. However, as several contacts pointed out this week, two critical factors stand in the way: firstly, the pound has lost significant ground against the euro over recent times, thus making board from the eurozone less attractive on this side of the Channel; and secondly, a huge amount of chipboard capacity has also been shut down on mainland Europe – put at anything between 6-9 million m3 since the onset of the world financial and economic crisis in late 2008 – and so an ever smaller volume is available to be spared for the UK market.
And with further restructuring predicted in the Continental chipboard production sector, the situation could become even more pronounced. For example, the announcement in late January of the proposed purchase of Belgian chipboard manufacturer Spano Invest NV by US floorcovering company Mohawk Industries Inc is tipped by some experts to lead to a further drop in the volumes being offered into the UK.
Import volumes fall
According to Timber Trade Federation (TTF) statistics, which now extend beyond the point last year when the Knowsley operation ceased production, UK imports of chipboard slumped 14.8% year on year to 391,000m3 in January- November 2012. "All of the leading particleboard exporting countries to the UK have exported less volume in 2012, with all imports nearly 15% lower than in 2011," the federation added. Over the first 11 months of last year, average prices in overall terms were higher than 2011, but the countries faring less badly – Germany and Belgium – exported to the UK at lower prices than in 2011.
The latest figures published by the TTF also confirmed UK exports of chipboard soared 36% from 108,000m3 in January-November 2011 to 148,000m3 in the corresponding period of last year, thus eclipsing the 121,000m3 exported throughout the whole of 2011.
UK producers are emphasising that they will be making every effort to be the main beneficiaries of this combination of a domestic capacity shortfall and a limited commercial scope for imports. "There are options to increase output and we will do our best this year," said one producer.
His counterpart at another UK producer confirmed his company was already planning moves towards the same end, adding that the business was also looking to "realign price levels" by raising the tags slightly more on those products and specifications that are less economical to produce or offer a smaller margin.
However, the latter insisted that "we are very close to being maxed out as a UK industry" and that there would be "a challenge going forward" regarding availability of material. The company had produced throughout the Christmas period and was still working "flat out, 24/7"; therefore, he added, there was limited scope at present for significantly higher production figures.
Given that the result of any upward shift in demand could be "shortages", he argued the need for customers to ensure that they are aligned with a source of supply. Another producer echoed the same warning, claiming: "If you get in and out of bed [with suppliers], it can come back on you."
Lead times on chipboard are described as largely normal for the moment, although it should be added that production in the latter part of December and early January built inventories at a time when the vast majority of customers were on holiday.
Price increases
The market situation described above has given rise to fears among the customer base of a spate of chipboard price increases. However, domestic producers have been quick to insist that they remain mindful of the profitability issues facing many of their clients. "We know that some of them find it hard to pass the increases on at the moment, so we have to work with them," said one manufacturer.
Some increases were implemented at the turn of the year: one producer confirmed, for example, that prices on construction products had been hiked by around 5% and that a similar increase was being sought from direct industrial customers as their individual contracts came up for renewal; and another manufacturer acknowledged an increase of, once again, around 5% on its melamine-faced chipboard (MFC).
Senior contacts at both these companies confirmed that they had no specific date in mind for the next round of price increases. However, one of them noted pointedly that an upward move prior to the second quarter could not be ruled out on standard board. "It is shaping up," he said, "especially if demand goes up and costs go up."
Sales strong
Chipboard sales had been quite strong immediately following the general return to work in January (although more particularly for MFC and T&G), thus indicating a need to make up for widespread destocking in December, he said. This momentum had been "more or less" maintained, he added, throughout the rest of January. At the same time, costs had continued to escalate: he pointed out, for example, that methanol prices had increased by almost 9% and melamine by more than 10% at the start of the year.
Having confirmed that his operation’s sales volumes had climbed 8-10% last year and that he expected "the trading environment in 2013 will be similar to 2012", another domestic chipboard producer spoke of healthy demand from the furniture and shopfitting sectors, as well as signs that the UK construction industry is more positive and "not as cautious" as it was last year.
The same producer went on to identify rising costs and also the need to invest in its operations as the major drivers for higher chipboard prices. He noted that urea costs had "remained at a high level", approaching 20% above that of two years ago, while his melamine bill had soared by more than a third since last summer. He also expressed concern that, while timber prices had been largely "steady", the UK chipboard industry had yet to feel the full impact of biomass developments. Industry representatives had recently met the energy minister to emphasise the inequity of biomass plant operators continuing to receive subsidies not available to others, he added.
Investment plans
The most tangible indicator of confidence in the future must be the preparedness to invest – and more than one of the domestic producers contacted this week appear to be planning significant expenditure in 2013. Egger UK, for example, has lined up projects worth at least £25m for its Hexham facility; indeed, construction has already begun on a £20m resin plant that will be started up "in stages", beginning around a year from now, with completion likely in around two years’ time. Not only will this update existing kit and add capacity, but it will also provide the scope to handle changes in legislation, TTJ was told.
Meanwhile, it has been indicated that a decision could be made within the next month regarding the new home for the production equipment from Sonae UK’s Knowsley operation. Having purchased the assets late last year, Kronospan has confirmed to date only that the final destination for the kit will be in eastern Europe.
