The big news from the chipboard sector is that product has finally begun to roll off the new ContiRoll continuous production line at Egger UK’s facility in Hexham. But despite this long-heralded development and Sonae‘s return to full production following its recent fire, unremitting tightness of supply continues to be the dominant factor within the market.

Even for their established customers, producers are struggling to fulfil any orders for additional volume. And options have become even more severely limited for those buyers who are new – or returning – to the market, or those who have been let down or switched off by a supplier. Chipboard producers have been responding in a number of ways to this challenge, including taking further steps towards plant optimisation, and simplifying product ranges in order to increase overall production capacity.

Started up by Egger UK towards the end of April, the new line at Hexham has already embarked on “24-hour production” and is expected to boost capacity at the site by 15-20% in its first year. Commissioning and product testing have been so successful that one of the plant’s two established lines has already been closed down; nevertheless, the switchover has led to an actual increase in production levels, a spokesperson confirmed this week. “Commissioning has gone a lot better than we could have hoped,” he added.

A large majority of the additional output resulting from the multi-million pound investment at Hexham has been earmarked for the UK market. Nevertheless, the spokesperson acknowledged that overseas shipments could be made to support other parts of the Egger group – especially in the near term given the chipboard shortages that have developed on the Continent.

Return to full production

As mentioned above, supply has also been improved in recent weeks following a return to full production at Sonae’s Knowsley facility. A fire in the plant room led to a complete shutdown lasting several weeks towards the end of the first quarter. However, a spokesperson confirmed this week that the factory had responded with a record monthly production total of 44,000m3 in April; this compares to the monthly average output at Knowsley of around 37,000m3.

Some buyers are reportedly claiming that prices should now fall as a result of the new Egger line coming on stream – but producers have been quick to dismiss this argument. In effect, all product available to the UK market is continuing to find eager buyers – conditions which prompted one source to advise: “Keep your friends close but your chipboard suppliers closer still.” And he added: “It is reaching the stage where the ability to supply is primary and the price is secondary.”

Since our previous report, the major players have been introducing significant price increases in response not only to healthy demand but also to rising costs of, notably, timber, urea and melamine. A leading domestic producer spoke of an average price increase of 7% introduced by his company in May, while another implemented hikes of “10% plus depending on the item” during April and the first half of May. A senior spokesperson for the latter noted: “Prices have gone up on all products. Even T&G has started to catch up – which is long overdue.” Further upward price movements were likely to take place in July, he added.

T&G price increases

Another prominent producer figure confirmed that his company would be seeking T&G price increases of between 6-10% with effect from July 1. “We have seen some incredible demand,” he commented. With quoted delivery dates already stretching into August and widespread anticipation of a stronger housebuilding market during the second half of this year, satisfying any additional demand is said to have become “very challenging”. Another source observed: “Higher prices do not seem to be helping the availability of T&G and thicker board.”

&#8220Most of the Continental European chipboard is staying in mainland Europe, especially as the sleeping giant of Germany seems to have woken up”

Another producer confirmed this week that, with regard to flooring, his company had “closed the order book for June and July” owing to the strength of demand. “We are still very, very busy,” he added.

The upturn in demand applies not only to T&G products but also to melamine-faced and other forms of chipboard. One of the leading domestic producers acknowledged that, from the chipboard perspective, his company’s year-to-date performance was “well ahead” of 2006 both in terms of turnover and volumes sold. “Nearly every month is a sales record,” he added.

The fact that producers, agents and buyers are all prepared for further price increases in the third quarter constitutes something of a watershed in the UK chipboard market. In previous years, the summer has traditionally yielded a lull in board sales, but against the current backdrop of a clamour for product and opportunities to move prices higher on a regular basis, chipboard producers are regarding forthcoming summer production breaks as – rather unusually – a necessary hindrance. Noting his company’s plan to shut for approximately one week in August for maintenance purposes, one producer said: “I would rather not have it.” Another contact highlighted the disruption caused by public holidays during May and the approach of summer shutdowns with the comment: “We could do without it. It causes chaos in what is already a chaotic situation.”

Welcome opportunity

The opportunity to raise prices is welcomed, of course, by the producers. At the same time, however, they remain keenly aware of the need to balance the chance to improve difficult margins with the ability of leading consumers to pay more. A UK chipboard producer underlined the need to achieve “structural health” within the market such that customers were able to pass on price increases. While acknowledging that significantly higher chipboard prices were causing pain among leading consumer sectors such as the furniture industry, he added: “We are seeing signs that resistance has eased in the last two or three months.” Other contacts also reported a larger measure of success of late in passing on cost increases – a fact which a leading chipboard producer attributed to “a growing realisation all the way through the chain that costs are moving up”.

This erosion of customer resistance may also owe something to the fact that supply is proving difficult across a wide range of materials – not just wood. For consumers, supply problems have become an all-to-familiar fact of life.

Leading chipboard producers have described the availability of timber as “okay” although supplies are proving increasingly expensive. But with substantial numbers of new biomass plants scheduled to come on stream in Europe over the coming months, the already heavy pressure on raw material supply appears certain to intensify.

Imported material

One of the keys to the development of this supply-led market in the UK has been the dearth of imported chipboard. Central and eastern Europe are generating high levels of demand and chipboard prices on the Continent are still significantly higher than those prevailing in the UK, although the gap is thought to have narrowed slightly following the domestic market increases of recent weeks. As a result, many mainland European producers can be forgiven for focusing on customers closer to home – especially when taking into consideration that exporting to the UK can entail additional transport costs.

According to a UK-based agent for a Continental producer, average delivery times remained around six weeks while cost and selling prices had continued to rise. “We are selling every board that we make,” he added. “Most of the Continental European chipboard is staying in mainland Europe, especially as the sleeping giant of Germany seems to have woken up.” Volumes are continuing to be shipped to growing markets in Asia but higher domestic production in some of these consuming countries has meant that “European prices are not so attractive as they once were”.