Reasonably stable market conditions during the traditionally awkward summer months and the closure of yet more capacity have created a well of upbeat sentiment within the UK chipboard. Perhaps buoyed by upward movement in other areas of the board sector, particularly in previously-beleaguered OSB, the chipboard market appears to be inclining towards firmness. Indeed, some operators have already implemented price increases while others are giving serious consideration to upward adjustments.
At the same time, however, there is evidence of strong competition in most areas of the chipboard business and of operators “not wanting to compromise market share by going for excessive price increases”.
In terms of production closures, the early weeks of this year witnessed the shutting down of the Masistar Ltd plant at Shildon – a large proportion of which was subsequently bought by Egger (UK) Ltd. Egger has now confirmed that all of this plant is to be relocated to Russia and that, once production recommences either towards the end of next year or in early 2005, the intention is to market the output entirely within the domestic Russian market.
In the light of this revelation, a significant chunk of chipboard production will effectively be kept out of the wider European market, thereby adding to the capacity lost in other parts of Europe during the course of this year. Most recently, it was confirmed that Interlin Inc of Belgium was voluntarily closing down and putting up for auction a complete factory, including a production line with Dieffenbacher hydraulic press, sanding line and sawing line, as well as chip preparation, drying and sieving equipment.
It was suggested this week that a significant volume of merchanting chipboard has “come out of the production equation” and that the remaining players have generally been able to “pick up the slack” – but at a firming price level. One source commented: “Unless demand falls through the floor, the only way the market can go is in the direction of higher prices.”
Robustness
In reviewing the events of recent months, industry experts noted that raw board demand duly diminished during the summer but not to the same extent as in some previous years, thereby creating a refreshing sense of continuity and underlying robustness within the market.
“There wasn’t the usual collapse in the summer and it has left people thinking that chipboard isn’t all that bad,” said one source. With evidence of lead times becoming “a little bit stretched”, there existed a degree of confidence that prices will remain “at least stable”.
In fact, a number of contacts suggested this week that the raw board market had already begun to firm. For example, a senior spokesperson for a prominent UK chipboard operation claimed this week that price rises well in excess of 5% had already been implemented by his company over the past couple of months and attempts at further increases would be made before the end of the year. Orders for raw board were in place for the next two months; P3 was currently sold out while lead times on P2 were “quite significant”, he informed TTJ.
“The Christmas period will impact on us a little, although we were surprised last year at how the market kept going right up until a few days before Christmas itself,” he said. “We are planning only a four-day shutdown at Christmas and minimal downtime next year.” The firm was already allocating production slots for certain customers for next year.
A senior spokesperson for one of the other domestic manufacturers spoke of a fairly busy recent period of trading despite the fact that the traditional autumn increase in activity had not been as pronounced as in previous years. On the upside, however, 2003 had “perhaps been a more stable year throughout”.
The flooring market had been “quite buoyant” whereas furniture manufacturers, by comparison, had been somewhat depressed. While his own company had not implemented a chipboard price increase since towards the end of the first half of this year, the same spokesperson confirmed that further increases were likely to be introduced in the relatively near term.
“There wasn’t the usual collapse in the summer and it has left people thinking that chipboard isn’t all that bad” |
While flooring has undoubtedly established a healthy growth pattern, there were some grumbles that margins were too low and that rebates/discounts were serving only to keep the market “under-valued”. Meanwhile, melamine-faced chipboard was “not quite as busy”. Several contacts confirmed that, despite some signs of slight improvement, demand from many of the key MFC-consuming industries had been “decidedly patchy” over recent months, while at the same time some major buyers in the furniture sector have disappeared altogether.
While complaining that “distributors seem to give in to housebuilders all the time”, one source also believed that the strength of demand for value-added products in general was sufficiently strong that “there is perhaps an opportunity to get prices rumbling in the new year”. His own company would be looking for a minimum price increase of 3% at that time, he confirmed.
Upbeat tone
The generally upbeat tone adopted by UK producers appears to be based on a number of factors, including reduced supply due
to recent disruptions to production within the market. In addition, it is believed that service improvements and the attraction for UK buyers of indigenous chipboard supply had tempted some buyers away from imported board.
Competitive pricing had also helped to secure business even though gains from a reduction in resin costs had been offset by increased timber expenditure, it was claimed by one producer.
Currency exchange rates have made price levels in the UK “extremely hard to compete against”, according to a chipboard contact who represents a Continental producer. However, his view that “a lot of us would be in the mire if it wasn’t for laminate flooring” was contested by another overseas supplier representative, who maintained that “our exports to other countries have been okay and so there has been no real need to match UK levels”.
Price trends
By no means everyone is forecasting a significant rise in chipboard prices in the short term. “The market has not given us scope for higher prices yet,” said one contact. “It could happen in January or February because, historically, prices tend to rise in the early part of the year to coincide with increases in shipping costs.” In the meantime, he believed the run-up to the Christmas holiday period would take the edge off demand in some areas, most notably in the shopfitting sector where usable floor space becomes the absolute priority at this time of year.
Another contact acknowledged that UK producers appeared to have “respectable” order books, but he also argued that “generally flat” construction statistics and other largely unexciting industrial indicators suggested that demand would remain on a reasonably tight rein.
His own longer-term and somewhat less encouraging view was that, as Asian nations gradually installed their own domestic capacity, companies that were currently relying on shipping product to these countries would need to find a new outlet for this material. In the next few years, he envisaged “serious rationalisation” within the European production sector and the closure of some ageing capacity.