There was no shortage of industry comment this week on the decision by Egger (UK) Ltd to buy a large part of the assets of Darlington-based Masistar Ltd – formerly Vertex Panel Products – which went into receivership in February after the energy supply to the Shildon production plant was cut off. The acquisition package concluded by Egger encompasses two chipboard lines plus chipping, drying and sanding machinery.

Of course, the $64,000 question is what happens next. There has been much speculation over Egger’s plans for the plant but, as TTJ was going to press, the company announced that a feasibility study had revealed it was not economically viable to resume production at Shildon and it was looking at alternative sites in eastern Europe.

News of the acquisition was greeted with a mixture of curiosity and no little trepidation by the UK chipboard sector. While on the one hand industry contacts were interested to see Egger’s next move, on the other they are somewhat mystified by the acquisition at a time of “massive overcapacity” when “a lot of people in the chipboard industry are losing money”.

Industry concerns

One contact described the move as “unbelievable” and feared that any resumption of production at Shildon would damage the balance achieved in the chipboard market over recent months and impair opportunities to introduce further, much-needed price increases. His views were echoed by several other chipboard industry players, including one who said that the absence of Vertex from the market in recent months had provided “more than a little relief”. Meanwhile, another expert source argued that it would be a mistake to increase the volumes of either flooring or standard board entering the European market.

However, feedback from the industry was not entirely negative. While describing any proposal to resume production at Shildon as “a capacity that the UK market can do without”, a leading industry figure added: “Even if this capacity came back on stream, I think the market is strong enough to withstand it.”

Fragile balance

In essence, industry concerns this week were centring on the potential for a resumption in production at Shildon to disturb what some experts consider to be a fragile balance in the chipboard market. Over recent weeks, the more than 10% shift in exchange rates has provided UK producers with “an opportunity to put up their prices” at a time when demand for many grades of chipboard is being described as reasonable to good, it was suggested.

In effect, explained one contact, overseas suppliers have been receiving 10-12% less per shipment because of the change in the currency. “We have had to look at our

lowest-priced chipboard contracts and start re-negotiation clauses because we can’t go on like this.” An agent for imported board confirmed that his company was looking to introduce currency discounts to offset the effects of recent exchange developments.

Meanwhile, one of the leading domestic manufacturers claimed to be “extremely busy” in all sectors of the business with the exception of melamine-faced material, for which sales have been reasonable but at rather low prices. Among other grades, prices had increased by around 10% since exchange rates became a major issue and the order book was “full”, he said. “Import displacement has been a big factor – some of the people who have been relying on imports are now looking for UK material.” This was happening to such an extent that “we have to decide who we let down”.

Strong euro

&#8220My concern is that we are all still busy fools. It’s the major customers like the housebuilders that are making the big profits – not the manufacturers, merchants or distributors”

The same contact confirmed that his com-pany’s lead times on P2 particleboard material had gone out to two weeks from the norm of a couple of days. This tied in with suggestions that the P2 price has risen by as much as 15% since the start of the year and that “importers are finding it tough because of the strength of the euro”. Indeed, there were suggestions that some customers had been forced to “move up the price and quality ladder” in order to obtain the supplies they needed, with some contacts expressing the hope that positive price movement in P2 material would have a beneficial effect on other areas of the market.

Another manufacturer observed that lead times on merchant grade 8×4 chipboard had extended to around a month and that supply was short. One source observed: “Some of the fringe players have been driven out and there is not a lot of material around. But it is also a clear sign that people are busy.”

He suggested that even some areas of the furniture trade were experiencing decent order books at present. But not for the first time, opinions varied on the strength of demand from the furniture sector, with other contacts pointing to contraction in the market as a result of some high-profile failures in recent months, such as flat pack manufacturer Home-PAC.

Higher costs

Another producer pointed to currency considerations and higher costs as the motivation for price increases of “at least 8 or 9% in the last month” on standard, furniture and T&G chipboard. Indeed, there was widespread talk this week of a further increase in raw material costs, notably on the chemicals side. “Any new chipboard business is feeling the effects,” observed a senior spokesperson for the manufacturing firm, “and we have already conditioned the market for higher prices”. But while his company was able to “sell as much as we make”, he underlined that an increase in the proportion of its added-value sales would provide an even greater boost.

This last comment emphasises what many feel is a “delicate” balance in the chipboard sector. “My concern is that we are all still busy fools,” said one contact. “Unfortunately, it’s the major customers like the housebuilders that are making the big profits – not the manufacturers, merchants or distributors.” With the chipboard sector managing to retain very little of the price increases as profit, he was anticipating more price rises before the end of the summer.

In this context, it was noted by several flooring specialists that demand from UK housebuilders has been reasonably good over recent months. One supplier explained that his company was currently 15% ahead of budget this year for its standard flooring and value-added products, adding that lead times on the latter had extended from “next day” to “8-10 days”.

Flooring price rise

Elsewhere, a manufacturer acknowledged the introduction of a 5-6% flooring price rise that, in the main, was intended to cover resin cost increases. Indeed, another contact argued that “prices had had to go up” and were still “very low” considering that flooring was once regarded as “a value added product”.

While acknowledging that demand from housebuilders was currently “fairly good”, a senior industry expert pointed to largely unpromising new housebuilding projections for the UK and commented: “We shouldn’t allow ourselves to get lulled into a false sense of security.” It should be remembered, he added, that the spring was one of the busiest seasons for the housebuilding sector.

Reasonable demand has also been reported for thick boards for doors, with the caveat that order levels are “nothing special” for the time of year. In a similar vein, there appears to be fairly good demand from the construction sector for T&G and MR material.

This pattern of demand offers something of a contrast to the situation in parts of the European mainland – particularly Germany – where extended breaks and maintenance shutdowns are serving to trim outputs in line with generally reduced demand. But even in the UK, there are fears that a summer downturn in orders could provoke an outbreak of ‘silly season’ pricing.