• Manufacturers have raised prices and will do so again in January.
• The increases are to cover higher costs.
• Demand has improved and lead times extended.
• The euro/sterling exchange rate has benefited UK producers.

The glimmers of light perceived in the UK chipboard market in August have become distinctly brighter, given an improvement in demand, a lengthening of lead times and an upturn – albeit modest – in prices. However, manufacturers remain unswervingly cautious about the future, not least because of their rising costs.

At least two domestic chipboard producers have confirmed the implementation of price increases of up to 7% as well as their intention to produce at a healthy rate throughout most of December – a far cry from circumstances last year when the final month was punctuated by substantial downtime as the economic crisis began to bite. One of the manufacturers expects to “run through most of December without any major stoppages” while the other is planning to break for only a short period between Christmas and New Year for maintenance. A spokesperson for the latter added that, in terms of his company’s production schedules, “November is full and December is likely to be full” while business is also “looking good” for January.

Higher costs

One of the companies to have introduced higher prices across its range of chipboard products, said the increases are intended simply to recoup elevated resin and transport costs. “We are taking a very responsible position – we don’t want to destabilise the market with excessive price increases,” said a spokesperson. “We are seeing slight signs of recovery but we don’t want to over-pressure distributors and customers.” The scale of the company’s future chipboard price increases would depend to a large extent on the actions of resin manufacturers, he added.

In addition to the rising cost of resin, producers also pointed to higher timber costs and the seasonal upturn in energy bills as reasons to maintain positive price momentum. Another domestic producer said implementation of price increases began two months ago and still represented “work in progress”. “We have taken away some of the cheaper prices that were available,” said a spokesperson. Deeming that volumes are improving but that chipboard prices are still “rising too slowly”, he expects to introduce further increases of at least 5% in early to mid-January.

The fact that prices are rising again reflects the improvement in orders, most notably from office, bedroom and kitchen manufacturers. One producer said that his lead times on melamine-faced chipboard (MFC) have extended to two to three weeks, while another claimed three to four weeks across most of his MFC product range.

Housebuilding market

Lead times are shorter for raw board while availability of T&G appears to be the readiest of all given the continuing weakness of demand from housebuilders. “We are seeing the first signs that things are picking up in the housing sector and we expect some improvement in 2010, but demand for T&G is only steady and prices are still miserable,” a producer spokesperson said.

According to one UK manufacturer, overall chipboard sales have improved around 25% in the second half of 2009 compared with the first six months, although he acknowledged that specific new contracts may have given his own company a bigger boost than others in the sector. One of his domestic counterparts said his company’s volumes have returned almost to the same levels as last year “and are increasing”.

UK chipboard manufacturers have continued to benefit from the weak pound making the UK unattractive for their euro-zone competitors. “Imports are down around 50% – who could send it here and afford to do it?” asked one domestic producer.

In its recently-released third-quarter results, Norbord made specific reference to the fact that the euro/sterling exchange rate “has had a positive impact in the UK market as imports become less economic, benefiting Norbord’s UK-based operations”. The company also noted that its European chipboard prices were some 8% lower than in 2008.

Stock levels

With producers emphasising their commitment to a sustainable approach to price increases, one called on distributors and industrial customers to recognise their own responsibilities in managing stock levels. At present, he added, many are still reluctant to buy forward and build stocks.

Distributors understand the importance of restoring value to the chipboard business but are also happy to hear acknowledgement from some producer quarters of the need for a measured, responsible price progression. As to the suggestion that distributors should adopt an equally responsible approach to stock management and forward buying, one commented: “None of our own customers are spending more than they have to. There is still a lot of nervousness around.”

This sense of caution is echoed in producer circles, with one telling TTJ this week: “It would be wrong to think that we are out of the difficult market conditions.” More specifically, he expects further casualties among those consumers who have freed up cash during the recession by reducing stock levels. Will they have the money available, he asked, to rebuild stocks when demand improves?