It’s been a fairly uneventful year for the chipboard sector and now, with the current Brexit deadline of October 31 looming, traders are hoping there will be no major disruption. Slow demand has characterised much of the year and there are mixed views as to whether the market is finally lifting.
One distributor described trading as “pretty flat” while another contact was marginally more positive, saying it was “an OK market”. “Prices have plummeted and a lot of foreign imports are coming into the UK,” the distributor said. “There’s not much buying going on across all grades; even P5 is only steady.”
A merchant shared his view. He said the market was softening as housebuilding had slowed because of uncertainty over Brexit and that was reflected in lower demand for P5. As a result, lead times, which had been stretched out to six weeks earlier in the year, were back to the normal three to five days and prices had been reduced by 5-10%.
Also, at the start of the year some P5 customers were on allocation from the mills but he believed that had now come to an end. He doubted that the lower prices would stimulate demand but his company would try to use them to its advantage to attract new customers.
A manufacturer, however, had a more positive stance. He said there was steady demand for peel-off protected P5 and that the T&G chipboard market had benefited from a higher level of housebuilding in recent years.
Another manufacturer felt the overall chipboard market had stabilised since the summer. “There were spot deals going on and prices were lowering because of excess supply and slightly lower demand. However, over the past couple of months it seems to be stabilising and, if anything, we’re starting to get a little bit more money for it,” he said.
Although not sure, he said the uplift may be the result of less product being available following the chipboard mills’ summer shutdowns.
Another contact said demand for MFC had picked up over the past four to six months and by mid-August there had been a noticeable improvement in orders. Prices were stable but, as with other chipboard grades, trading was not accompanied by a fanfare.
“There could be a bit more life in it but we do see growth,” he said.
Sales of P2 have also been unremarkable and a distributor said prices had fallen by 25- 30% since early summer.
Some of this lacklustre demand reflects the falling trend for P2 as end use manufacturers are turning to alternative products.
“Pure P2 in the retail sector has been declining for several years and is being replaced by OSB and MDF,” TTJ was told.
“The market is still there but it’s not that exciting anymore and everyone is looking to use value-added products.”
There is a similar trend in the furniture market where items such as television units, once made from foil-covered chipboard, are now glass and metal.
“End uses for P2 are dwindling; we could do with finding new markets,” said one contact.
A distributor said recent P2 demand had also been affected by lower mortality in the UK this year. “We had a mild winter and a generally cool summer. The mortality rate is down so there aren’t as many coffins being built,” he said.
There is a perception that imports of chipboard from mainland Europe are swelling supply and deflating prices. Certainly earlier in the year European producers were looking to counter weak domestic demand by exporting volumes to the UK but the latest statistics from the Timber Trade Federation suggest this trend may be easing.
In January to April this year, the UK’s chipboard import volumes were up 7.5% on the same period last year. The latest statistics, however, show that from January to June this year, chipboard imports were only 1% higher on the corresponding period in 2018, and in the month of June they were 20% lower than in June last year.
Now, as trading enters the fourth quarter, the chipboard sector is hoping for stronger autumn sales before heading into the quieter winter months. One manufacturer said that since mid-August the indications were that the market was following the “normal pattern” and entering a busier period, while another contact predicted a buoyant October.
“I think October is going to be extremely busy and then November and December will be tough months when people either try to get rid of stock they’ve bought or run their stocks down for stock takes at the end of the year,” said one contact.
Of course the picture is clouded by the ever-present shadow of Brexit hanging over business.
“I think Brexit is having an effect; everyone’s saying the uncertainty is having an impact, or people could just be using it as an excuse,” said a distributor.
Whether the UK leaves the EU on the next Brexit deadline of October 31, and whether that is with or without a deal, it feels as though many in the chipboard sector, and probably the wider timber trade, are inured to the continuing saga or resigned to the outcome. Some contacts said there was a flurry of activity leading up to the initial March 31 deadline but this had not carried on through the year.
“There’s no evidence that our customers are stockpiling ahead of Brexit,” said a merchant. “A lot of our customers will depend on us having plans in place to take additional stock or just-in-time deliveries.”
A distributor agreed that there was less overstocking. Of those who overstocked at the beginning of the year, he estimated that about 50% had done so again.
One manufacturer thought Brexit was having little influence on customers’ decisions this time round. “There was more going on towards the end of March when customers stocked and then destocked. I don’t think they’re stocking up now and we’re also not seeing as many questionnaires coming around asking about our Brexit planning,” he said.
He added, however, that people were starting to source from the UK as much as possible.
Where Brexit had affected his business was through the value of sterling. The price of chemicals had fallen in recent weeks but any potential gains had been countered by the weaker pound.
A no deal Brexit may create immediate changes, such as additional due diligence requirements and freight challenges, but many are hopeful that suppliers and customers have contingencies in place. “As long as the supply chain has its plans in place it shouldn’t really affect us too much,” a merchant said. “We will need to be more forward thinking with our planning because there could be longer lead times and duty.
There will be price increases, fluctuations in currency and perhaps delays at ports but our business will continue much the same.”
Another agreed that the industry was prepared, although there could be unforeseen problems and hurdles.
“There’s going to be a slowdown just because people are a bit unsure but we hope that by 2020 everything should be back on track,” he said.
The wider concern is that a no deal Brexit could create not just a slowdown, but send the UK economy into recession.
“That’s what everyone is talking themselves into at the moment, and the more people say that, the higher the certainty of it happening,” said a distributor. “If that happens the whole market will slow down and prices will fall – but fingers crossed it doesn’t happen.”
Another contact was less concerned, regarding a recession as short-term pain in what is otherwise a positive market for chipboard and other construction products.
“We could go into recession but it might be for only three to four months and it doesn’t change the basics: the UK needs more housing. For years we have not filled the extra demand for housing and now three million adults in the UK are living with their parents, so there’s a lot of potential demand queueing up,” he said.
So, like everyone in the UK, the chipboard sector is waiting and watching to see what happens on October 31 – and then again to see how the market responds.
“If Brexit does happen and it’s a no deal I think everyone will hold onto their stock and try not to do anything silly and see what happens over the following few months while it settles,” said one trader.
Even if the Brexit process brings about some resolution or certainty, a general election could launch the UK into another shaky period. It would probably be short-lived but have sufficient impact to be noted.
One contact who was positive about the chipboard market over the next few months was also aware of how external influences could upset the balance.
“I am cautiously optimistic about business in the coming months, but politics can always mess things up,” he said.
