Recent price rises have helped to put the UK chipboard trade in a reasonably positive frame of mind at the start of the new year. These increases are said by many to have averaged between 2.5-5%, although rises of 10% and beyond were reported for some items, most particularly in the commodity area of the business. And according to several leading chipboard market players, the fact that these new levels have been largely absorbed by the chipboard customer base suggests potential for further price growth in the coming months.

Since the majority of TTJ’s contacts were suggesting this week that recent chipboard demand in the UK had been falling mainly between “flat” and only “slightly improved”, this trend towards firmer pricing is attributed to two principal factors on the supply side: a need among manufacturers to respond to significant increases in production costs; and a substantial loss of capacity within the UK and wider European chipboard industry over the past 12 months.

In the case of the former, resin costs are estimated to have jumped some 26-27% higher over the course of the past year while gas and electricity prices have also been forging ahead. One of the major domestic manufacturers also pointed to a significant increase in paper costs and to the fact that raw material costs “have not gone down as we had expected”.

Delicate market

Thus, despite the latest round of price increases, domestic manufacturers are unified in insisting that chipboard continues to offer a relatively poor return on capital investment. “It is still a very delicate market with some manufacturers fighting each other to a standstill,” commented one major UK player. “The market has started off firm in 2004 but we still need an increase because of these increased costs.”

One contact’s company had yet to push through a price increase on raw board but believed any rise would be limited to 2 or 3%. “It is still a buyer’s market,” a spokesperson insisted. From elsewhere in the manufacturing sector came the comment: “We are still below cost prices – it is a constant battle to get prices up and we may look at further increases by April.”

The mood was summed up by another UK manufacturer who observed: “We are not having it easy, but we are busy.”

Domestic demand appears to have held up reasonably well either side of the recent festive period while the market in certain parts of Continental Europe has been nothing short of frantic, it was suggested from another quarter. “Consumers seem to have fuller order books,” TTJ was told. “It is strange that there has been an improvement at a time when the bottom has dropped out of the Asian market due to the value of the US dollar, but Europe seems to have sucked the material in.”

As for recent losses in chipboard capacity, it is estimated that as much as 1 million m3 has disappeared from the western European scene over the past 12 months. Most prominently, output has been curtailed in the near Continent and also in Germany; for example, Hornitex closed one of its four lines in Germany during 2003 owing to a severe downturn in demand from its key customers in neighbouring France.

Capacity losses

In the UK, meanwhile, it will soon be the first anniversary of the closure of the Masistar Ltd plant at Shildon. As reported in TTJ, a large proportion of the production equipment was subsequently bought by Egger (UK) Ltd and is now destined for Shuya, some 100 miles north-east of Moscow, where the intention is to establish annual raw board capacity of 250,000m3 by early next year at the latest. According to the latest update from Egger, most of the equipment at Shildon has already been dismantled for loading into containers.

&#8220There are more price increases around the corner. I can only see the market continuing to firm”

The combined effect of these capacity losses has been to apply pressure to the supply chain to a far greater extent than in the recent past, with lead times having gone out – and quite significantly in some cases. It was also confirmed this week that UK supply will be further disrupted later in the year when Kronospan replaces a filter system which will reduce the capacity on one of its dryers at Chirk. According to the company, this project will take around three months to complete and is likely to start towards the summer, although no definite start date has been set yet. The replacement programme could potentially reduce the plant’s production capability by 10-20% “although we will be building stock to cope with this”, TTJ was told.

Balancing out these supply reduction issues to some extent, it was reported this week that chipboard producers in the Baltics have not had to cope with the ice problems which led to severe disruption of shipments through several of the region’s major ports early last year. Although it was also pointed out that the situation can change very quickly, chipboard manufacturers are busy and will be looking for price increases of between 5-8% during the first quarter of this year, it was suggested.

Bullish outlook

Taking all of these supply issues into consideration, trade contacts were mostly bullish in their market assessments this week. One of the leading domestic producers spoke of “quite lively” demand for P3, and of a P2 product that was generally scarce. His company also had a record month for melamine-faced chipboard sales in December – a fact which he attributed to an improve internal performance and to winning some business from importers. His overall view was that “the value of chipboard is still too low” and that “we will see more price increases in the near future”.

Another domestic chipboard manufacturer took a more sanguine view of demand, pointing to a fairly flat chipboard flooring market and to the adverse impact on melamine-faced chipboard demand of a very difficult furniture market. Several leading UK furniture manufacturers had disappeared from the market over the past year and “a lot of manufacturing has gone out of the UK – which is a worry”, he said.

On a brighter, he added that consumption of 22mm chipboard flooring had increased due to new acoustic requirements in the Building Regulations, as well as to the wider use of I-beams.

Looking at future prospects for chipboard, most contacts believed that 2004 had the potential to be significantly better than 2003, while adding that it was still “too early in the year to get a real feel for the market”. Several experts argued that much would depend on the performance of the major European economies and on whether manufacturers in some leading producer countries would be persuaded to export board at low prices. Rather encouragingly, demand appears to have improved – albeit slightly – in the massive German and French markets. In the case of the former, the national index of business confidence ended 2003 with five consecutive months of improvement, leading one UK-based chipboard player to comment: “If it continues to get better over there, they hopefully won’t be looking to sell at daft prices in other countries.”

Feel-good factor

Several other contacts highlighted the improvement in the huge German market, as well as the relative resilience of the UK economy, as major reasons for the emergence of a feel-good factor across many board products, and not just chipboard. Indeed, it was suggested that there were extremely encouraging levels of activity in the public sector and that the perceived reduction in consumer expenditure over the key Christmas period may leave more money available for spending on house improvements during the course of 2004.

Taking all these factors into consideration, one source concluded: “There are more price increases around the corner. I can only see the market continuing to firm.”