Only a couple of months ago, most UK chipboard industry experts were predicting further price increases this autumn on the back of decent demand and tight supply. But even before the summer has run its course, chipboard prices have resumed their steady climb – albeit partly in response to mounting production and transport costs.
The equilibrium between supply and demand in the UK is said to be “very finely balanced”, leading to a suggestion this week that “we are getting very close to a seller’s market in chipboard” for the first time in many, many years. The general feeling was that, after years of often rapidly rising costs but relatively stagnant chipboard prices, producers had now discovered a “window of opportunity” to make up at least some of that lost ground.
One producer confirmed a price rise of more than 5% across his company’s range of chipboard products, adding that higher increases had been imposed on the more “inefficient” sizes. He confirmed that his own company had effectively pushed up its chipboard prices by more than 20% since the start of the year.
Lead times
Having indicated that lead times had gone out as far as five to six weeks but had never dipped below three weeks during the summer, he said: “Demand for chipboard has stayed so strong and we have had huge cost increases too – melamine and urea prices have gone up on the back of higher oil prices, while our energy costs have also increased.” T&G sales were 15% higher this year compared with 2003, he added.
Another domestic manufacturer reported that strong demand and short supply were continuing to permeate the entire chipboard sector. His company had responded to the healthy level of orders by introducing a flooring price increase of between 4-7% with immediate effect.
August was described by another chipboard producer as “an absolute record month for us”. His company’s lead times were currently exceeding two weeks for raw board and were nearer to three weeks for melamine-faced material. New minimum order levels had been established for raw board and P1 prices had been increased by around 5%. Pointing to a hike in electricity and resin costs, he added: “We have had no option but to put up prices.”
For all of the domestic chipboard producers, the task of pushing through further price increases has been facilitated to some extent by the low level of imported board coming into the UK, a large proportion of which was described this week as “specialist volumes”. The trend towards low import volumes “won’t change this side of Christmas because Continental mills are chock-a-block at the moment,” said a spokesperson for a leading mainland European producer.
This situation has arisen in part because producers on the Continent are concentrating on responding to heavy demand in their own home markets, while any of their surplus volumes are tending to head east rather than west to satisfy requirements in eastern Europe, the Middle East and also the Far East. Pointing to the particularly healthy appetite for chipboard in China, one contact said: “There may be more material around once some new capacity comes on stream in the Far East but furniture capacity, for example, is growing so fast in China that it will soon be absorbed.”
According to statistics in the 2003-2004 annual report from the European Panel Federation (EPF), the UK imported 1.106 million m3 of chipboard in 2003, a sizeable 14.2% below the 2002 total of 1.29 million m3, while exports surged 37.2% to 166,000m3 from 121,000m3 in the previous year. At the same time, UK production advanced by 4.7% last year to 2.246 million m3 – its highest level since the 2.281 million m3 recorded in 2000 – while production capacity dropped from 2.815 million m3 to 2.735 million m3. Pointing to the gap of almost 500,000m3 between actual UK production and capacity, one expert said: “Manufacturers are able to produce such a diverse range of products that capacity goes right down.”
Selective manufacturing
“The overriding lesson that the industry is learning is to take advantage of market conditions sensibly. Chipboard is a grossly undervalued resource and people need to pay a proper price for it to ensure production development” |
To some extent, this observation ties in with the earlier reference to inefficient sizes and it was a recurring theme in discussions with UK chipboard experts this week. In effect, the chipboard mills are being quite selective in the specifications they manufacture and prefer to concentrate on those products that yield the best margins. This selective approach is being taken not only by mills in the UK but also by their counterparts in mainland Europe.
Thus, there appears to be extremely limited availability of P1 material and evidence of some customers having to upgrade to P2, with the result that “the gap between the two has closed” recently. One contact said that “not every thickness and size is being produced in the furniture grades” while another said “even the big players are finding it hard to source volume”.
On the news front, Sonae has confirmed that it is spending approximately £2m on additional cleaning capacity at its Knowsley site. According to a senior company spokesperson, this move will relieve a bottleneck and push up throughput at the plant by around 4,000m3 per month. The new cleaning equipment is scheduled to be installed by July next year.
In the wider context, upward momentum within the chipboard market is also due in part to the removal of nearly 1 million m3 of chipboard capacity from the European market during the past two years, as well as to the dearth of new production projects on the drawing board. Even if the green light were to be given today to a major new venture, then start-up would be the best part of two years away.
Stuttering capacity growth at a time of good demand was a reflection of low prices over a prolonged period and therefore of low investment, according to one chipboard expert.
“The overriding lesson that the industry is learning is to take advantage of market conditions sensibly,” he said. “Chipboard is a grossly undervalued resource and people need to pay a proper price for it to ensure production development. There is still only limited investment coming through in traditional production areas, but a lot more in developing countries.”
The way forward
The same contact said that, from the UK perspective, steady price development was the most sensible way forward. Indeed, domestic producers stressed that they were striving to push up prices in relatively small increments in order to help consumers to absorb these increases. One domestic manufacturer commented: “We want to be sensible for the sake of our customers, many of whom have remained loyal through tougher times.”
At the same time, chipboard producers and traders interviewed this week said that, in general, customers understood the reasons behind the recent series of price increases and were willing to pay these higher levels. “We haven’t sold any less because of having to push up our prices,” said one source.
Manufacturers also stressed the inevitability of further rises before the end of this year but were unwilling to commit themselves to timings and to their likely scale. One producer said: “We know where we want to be by the end of the year. We are not sure whether the increase will be in one or possibly two stages.”
If the strength of a market can be gauged by the absence of negative comment, then chipboard would appear to be set fair for the short to medium term. Indeed, the only complaint to reach TTJ this week concerned CE marking. “We spent a lot of money and time conforming to these requirements but only three people have ever asked us about it. It makes you wonder what was the point of doing it.”