Summary
• UK chipboard consumption is down 30-35% a year.
• Imports are reported to have fallen to 300,000m³.
• The weak pound is benefiting UK chipboard-using furniture makers, boosting decorative sales.
• Chipboard suppliers report builder customers taking construction sites out of mothballs.
• T&G sales are badly hit, but one mill saw a July upturn.

One of the big name chipboard producers told TTJ they’re not making a loss but haven’t yet found a way to make a profit. It’s not the most upbeat statement, but, given recent trading conditions, the company was relatively pleased with the position.

“The fact that things aren’t as bad as were forecast in the last quarter of 2008, the worst of my 25 years in the business, is something,” said a spokesperson. “And in some respects recently we’ve seen more encouraging signs in market outlook; it’s patchy and there’s no guarantee it will last, but it’s there.”

Admittedly not everyone in chipboard shares this perception. “Dire” is still a common description for overall sales and one merchant distributor said they were getting used to “bumping along the bottom”.

Plus points

However, while everyone agrees times remain tough, more than one company was willing to pick the plus points out of a difficult market. Some acknowledged that where they were experiencing an improvement it was because customers had overdone destocking at the end of 2008 and had to rebuild inventories, or they were doing better at someone else’s expense, with UK producers still capitalising on the strength of the euro against sterling to fend off imports. But others agreed that some aspects of trading were looking fundamentally stronger. “I’m not going to say green shoots of recovery,” said one producer. “But maybe we’ve got a few germinating seeds.”

Year on year, it’s generally agreed, statistics for the market as a whole still make grim reading. “Total annual UK chipboard consumption is generally reckoned to be down 30-35%; from 3-3.2 million m³ to around 2 million m³,” said a producer. “Imports have fallen from around 900,000m³ to about 300,000m³, but UK manufacturers in normal times had annual production of about 2.5 million m³ so there’s overall more than enough chipboard out there chasing the demand.”

Forward ordering as a consequence is still thin. One producer said it was limited to non-standard products, another that they’d “forgotten what it looks like”.

“The market has got used to buying on a last-minute.com basis,” said an importer distributor. “Lead times might go out to two to three weeks on items where producers get an unexpected run. But currently I can get pretty much get what I want, when I want it.”

Manufacturer shutdowns are further evidence that the chipboard buyer is firmly in the driving seat, said a distributor.

“Producers seem to be having more or less normal summer shutdowns, but they’ve sneaked in extra ‘essential maintenance’ breaks to avoid flooding the market,” he said.

Positive signs

So where in this still seemingly depressed picture are the positives? One mentioned by producers and distributors was the first glimpses of rising confidence among housebuilders. “It’s isolated pockets and pretty low level,” said one manufacturer. “But we are seeing more developers opening up mothballed sites.”

One builder highlighted was Redrow. “They’re not going for large-scale, speculative construction,” said a manufacturer. “But they’re putting a few houses on sites to generate interest and, from what we’ve heard, it’s working.”

“We’ve had further evidence of increased building activity from the portable office manufacturers, who also use chipboard themselves,” said one distributor. “To sell off these sites housebuilders need the office alongside the showhouse and suppliers say they are seeing an upturn in orders. The proof of the pudding will be if, once they’ve got the site office, the developers sell the houses, but with banks being a bit more generous in mortgage lending, market conditions are more promising.”

Furniture benefits

Besides “letting UK chipboard producers have it all their own way against overseas suppliers”, as one distributor said, the weakness of the pound is also reported to be benefiting customers in the UK furniture industry. Once all the talk was about the inexorable shift of furniture making to lower labour cost countries. But, according to one chipboard maker, the exchange rate has given producers here a boost. “In fact, I don’t think you’ll find much spare capacity at some UK manufacturers at the moment,” he said.

Another company agreed: “There’s no doubt some UK furniture makers are having a reasonable time and we’re more than happy with our decorative sales for June and July”.

It’s also reported that the furniture UK companies are doing best with currently tends to use more chipboard.

“Fewer consumers are opting for real high-end products,” said one chipboard manufacturer. “They’re choosing the £10,000-15,000 kitchen instead of £20,000-plus and the flatpack and ‘Argos-type’ furniture which they expect to live with for four or five years.”

At the same time, he stressed, consumers still want something that looks good. “So we’re developing more products that are competitive on price, but look more technical, like PVC-edged MFC panels.”

“We’re also seeing a market push on products like chipboard door blanks, which can command £30-40 per m³ more than volume grade,” said a distributor.

According to another chipboard producer, UK furniture materials suppliers have also benefited from the demise of MFI. “They imported a lot from Italy and now a proportion of their production has been absorbed by UK manufacturers using UK materials,” he said.

Generally producers say the best selling chipboard grades are P1 and P2 “as they’re commodity items used for any job”. Tongue and groove is still said to be faring worst because of its dependence on construction, although some feel it may now get a lift if more developers revive mothballed sites – in fact, one manufacturer reported that July was their best T&G month this year.

A distributor said the repair maintenance and improvement market was also generating some demand. “Although for an extension or refurb, you’re only looking at perhaps 20 sheets, while even for a modest multi-property new build you’re talking a hundred-plus.”

Production capacity

Looking at chipboard production capacity, even the companies taking a more optimistic market outlook anticipate more plant closures across Europe. “Production is being reduced as we speak,” said one manufacturer. “And further reductions will happen due to losses experienced by producers.”

“Market recovery is not going to come soon enough to save some plants,” said another. “Also there are now more productive modern plants with greater flexibility to increase output as required, so we’ll see more older facilities going.”

On prices, one contact said current levels were unsustainable given rising costs for energy, resin and fibre, with the bio-energy sector now posing increasingly serious competition for both virgin and recycled material. But, they added, “it depends very much on what Egger and Sonae, as market leaders in the most competitive segment of the chipboard market, will do”.

As it turns out, Egger does plan a “general increase on commodity products”, while Sonae expects a price push in the “busy September to November period”. “The market is still some way off the prices we’d hoped for at this point and all the investment in plant by us and other manufacturers has to be paid for,” said the company.

How easy it will be to get a rise through remains to be seen, but it seems it would get the backing of the distribution sector.

“To some extent I don’t care whether my supplier charges me £10 or £20 a sheet, provided my customer pays me the margin,” said one company. “But I’d prefer the higher price as it would reflect a firmer market. Having said that, we’re all still looking over our shoulders to see if competitors are selling cheaper.”

But to end on another expression of confidence, having reduced one of its UK mills to three shifts and cut staff last year, one chipboard manufacturer says it has now returned to four shifts and is re-recruiting.