The chipboard supply issues that emerged in the second half of last year are continuing to cause headaches for traders.
Supply does seem to be easing a little but some distributors and merchants are on allocation and manufacturers’ lead times are still way beyond the norm.
While the UK’s larger distributors and merchants have agreements that provide some cushioning from supply problems, one contact said smaller merchants would be “squealing at the moment because they’re struggling to get material”.
One distributor who deals mainly in P2 said it was “the worst time for supply” that he had seen in 20 years in business and it made buying decisions difficult. Last year his company could secure only 75% of the supply it bought in 2016, and the current situation was no better.
“The domestic mills are quoting lead times of around four weeks and European mills are quoting 10-12 weeks. UK product is around 20% more expensive than Continental so you either pay more and have a shorter lead time or you wait three times as long,” he said.
The tight supply meant his company was spending a lot more time and resources on securing product when they would rather be concentrating on sales.
A merchant agreed that finding product was the overriding concern. “At the moment it’s securing the supply which is the main element of the negotiation rather than price. If you can’t get the product you can’t sell it and you can’t make money,” he said.
UK chipboard manufacturers are grappling with the same raw material shortages facing sawmills as well as the added burden of competition from biomass.
“Raw material is tight,” said one manufacturer. “We’re having to find alternative supply solutions, which are typically more expensive, and a little bit of spot business, which is also more expensive.” Despite this he said it had not affected production.
“Even through Christmas we had enough wood available to keep production running and that’s our expectation going forward; it’s just going to be a bit tighter and a bit more expensive,” he said.
For European mills the lack of product availability is the result of a long period without investment in chipboard production so capacity has not grown, or perhaps has even declined. The supply issues were exacerbated last autumn when two Sonae factories in Portugal were closed because of forest fires. In addition, demand was strong in the UK and across Europe, a European manufacturer told TTJ, so his company was working on allocation of raw chipboard in the UK.
“The moment you open the door everyone comes asking for product so we have to work on allocation. We’re having to turn some people away or give longer lead times,” he said. Of course manufacturers’ focus on the more profitable value-added grades has also affected raw board volumes.
A merchant said P5 was in tight supply. He had managed to secure stocks but some have not been so fortunate.
“Some suppliers can’t supply certain buying groups on volumes because they’re committed to volumes with other customers. As a result some customers are looking for supply and having to depend on distribution,” he said. Mixed opinion was expressed by contacts as to Kronospan’s production status at Chirk following a fire in one of the driers on the chipboard line last September.
In response to this uncertainty Kronospan issued a statement to TTJ to clarify the situation, saying that its Chirk mill had been fully operational for some time.
“Although setbacks were encountered during 2017, which resulted in lower levels of production, this was boosted by support from other Kronospan sites, which culminated in more product being supplied to the UK market than in previous years,” the company said.
It added that its £250m investment programme was on track. “To date, the Chirk MDF and chipboard manufacturing facilities have been significantly upgraded, lamination equipment has been renewed completely, complemented by Kronospan’s new Global Kronodesign Collection launched in 2018.”
Further investments have been made to meet increasing demand for laminate flooring and worktops. The log yard and onsite sawmill have also undergone major efficiency improvements.
“Investments have also taken place to improve raw material quality by systematically using a highly technical cleansing procedure to further enhance the product quality, coupled with investments in processing capacity increases.”
Kronospan is currently installing a new structural T&G profiling line, which will increase the mill’s volumes of T&G structural flooring.
“Future developments, which are now at an advanced stage, will also be the investment of a new OSB manufacturing facility in the UK,” Kronospan said.
Manufacturers have instigated several price rises to cover their increased costs, the latest taking effect this month or next. The increases have generally been 6-8%, depending on the product, although two merchants had heard of a 20% hike and one thought there could be double-digit rises in the autumn.
Another merchant welcomed what he said were regular increases of at least 5%. “Little and often is the right way to deal with pricing, and the market can handle price increases,” he said.
One manufacturer was concerned that some may view the increases as profiteering, but they were necessary, he said.
“From the outside it may look like we’re taking advantage of the situation and being greedy but after the EU referendum the profitability in this industry sank considerably,” he said. “We implemented price increases but we were always behind.
Whatever margin we were making before Brexit, we weren’t able to make again.”
A merchant recognised the pressure on manufacturers’ costs but with each price increase his margins had been eroded slightly, he said.
“Manufacturers have pressure on costs and are having to compete with home-grown sawmills for round logs, as well as facing increased resin prices and competition from biomass. We understand that. But while the increases have been relative to manufacturers’ costs they’ve been too high for us to apply properly,” he said.
Traders agree that demand is fairly strong for all chipboard grades and from all sectors in the UK, from housebuilding through to shopfitting and KBB, although some pointed out the supply-led situation makes it difficult to get a clear picture of the market’s appetite.
“We’ve seen a lot of people stockpiling, trying to get in before price increases, so it’s not always clear how busy the market actually is,” said a distributor.
His own company would be holding extra stock in the lead-up to the summer holidays in anticipation that customers would want enough product to last through the seasonal shutdowns. “We’ll hold stock not to secure new business but really just to stand still.”
A merchant contact said his company was seeing “fewer availability problems than we did in October and November” but he suspected it may be because demand was declining.
The housebuilding sector continues to be busy but for chipboard there are also volume sales for RMI, shopfitting and commercial fit-outs where demand is “very patchy”.
“There’s a mixed report on trading, ranging from good to quiet,” he said.
Added to this, he said, was a warning from manufacturers of an impending shortage of FSC-certified logs in Europe. A lot of 18mm P2 went into furniture framing for companies that were big household names. “If we can’t get hold of FSC-certified material for them there’s going to be a knock-on effect,” he said.
While contacts agree it’s not the easiest of times, many believe that demand is healthy and therefore the outlook is not all bad. “We had a pretty strong start to the year and demand is still good,” said a merchant. “It’s going OK and I’m not expecting any big surprises.”
A manufacturer had similar sentiments. “We had a good start to the year so we can’t complain. Last year overall volumes, capacities and turnover were up year-on-year although profitability was a little behind because of the impact of the exchange rate on costs,” he said.
He expected the next six months to continue much the same as “our customers believe the UK market is OK”.
“People are a bit more cautious because of the Brexit discussions and there’s a slight consumer slowdown in big ticket items but, generally, the market remains relatively optimistic,” he said. “Demand remains quite strong and long may it last.”
With lead times already stretching into the next quarter, another manufacturer expected little change over the first half of the year. What happens after that, however, is less certain.
“We’re happy with the UK market at the moment but there will come the time when there will be more product available and demand may weaken with Brexit next year,” he said
