Summary
• New year trading has started well.
• Sales of MFC and T&G products are up.
• Price increases are likely to be introduced in the second quarter.
• Methanol and timber prices are rising.
Although nobody in the UK chipboard sector is abandoning themselves to rampant optimism just yet, early trading in 2012 is widely regarded as grounds for encouragement. “We have been pleasantly surprised how this year has started for all the panel products,” TTJ was told this week.
A spokesperson for a domestic chipboard producer reported that the company had particularly healthy sales of MFC in late 2011 and they had continued into the first half of January – an indication of widespread home improvement activity, he said. The raw board market had been slightly slower in December compared to normal months amid evidence of destocking, he added.
Given the general economic conditions and the laboured discussions surrounding Eurozone debt, “we are still in a bit of a wait-and-see situation”, he said. “But in principle, I’m optimistic. I’m also seeing a good level of optimism among some of our customers – an attitude which, I think, is the right one.”
He described the construction market as “my biggest hope” for this year, adding: “It is at a low level now but I would hope for some improvement by the second half of 2012.” The London Olympics would have a positive – if limited – effect on the market too, he said. The majority of industry experts contacted shared the view that the second half could bring a slight improvement in business conditions.
Housebuilding
Another domestic producer who spoke of generally encouraging market indications in early January added that this included T&G. Smaller housebuilders were significantly less active in chipboard buying than their larger counterparts but overall, said a contact, the sector has made steady year-on-year improvements since the crisis of 2008 “but is still way down on 2007”.
Among the other market observations made this week, a chipboard producer spoke of “evidence of a bit of resurgence in January based on the healthy order book we have”. He added: “We are in a better position than we have been in January in the previous couple of years. This could be down to disciplined destocking in December.”
Several contacts pointed out that milder winter weather had boosted demand during the early weeks of 2012 for all panel products for external applications. One spoke of “good” recent demand for chipboard, adding: “There are still gaps in some thicknesses and qualities.”
In terms of prices, there has been no repeat of the events of January last year when domestic producers implemented early and larger-than-normal increases – the hikes amounting to as much as 15% in one instance. Speaking to TTJ this week, a producer whose most recent price increase was in the third quarter of last year said “we haven’t announced anything yet” but the company was “likely to review the situation for the second quarter”.
This tallied with the view of another key player: “Raw material costs are still eroding manufacturers’ margins but I don’t think that prices will increase early on this year.” The earliest date heard by TTJ for a price increase in the UK was late February, with most sources indicating that they were unlikely to push for an increase to come into effect much before the second quarter. One producer said he was aiming to move prices on certain products probably “at the back end of the first quarter”.
Prices must rise
The price increases may be a little delayed, but the overt message from chipboard producers remains unaltered: there is no commercial argument favouring a backward step on prices. Indeed, cost increases are expected to continue to force their sales prices higher during 2012; already methanol and timber prices “have edged up”, said one chipboard producer.
A fellow producer said the industry “must look more at managing its capacity” and at eliminating unprofitable production. “Customers shouldn’t assume we won’t put up prices just because the market is difficult,” he said. “It has to be commercially viable business from our point of view.”
The final weeks of 2011 brought a significant development in the UK’s chipboard manufacturing sector. Following completion of a £25m initial phase of reconstruction after the serious fire in June last year, Sonae UK restarted production at its Knowsley facility in mid-December. Since then, “we have achieved what we had hoped for,” Sonae UK’s managing director Nigel Graham told TTJ. “We will now ramp up steadily to 80% capacity by mid-March at the latest.” The £30m second stage of reconstruction, which includes dust reduction, are under way and the aim is to complete this entire phase by July this year, he added.
Sonae UK’s return to production has prompted concerns that the market balance could be disturbed. However, Sonae UK and others have been quick to calm such fears, pointing out that it had been bringing in product from other parts of the group to ensure continuity of service.
Import statistics
This is reflected in latest figures from The Timber Trade Federation (TTF): Portugal’s share of UK chipboard imports soared from 3% in January-September 2010 to 11% in the first nine months of last year, with the country supplying over 28,000m³ more in 2011. Total UK imports of chipboard were 2.4% higher in the latter nine-month period at 362,000m³ compared to 353,000m³ in the same period of 2010.
The latest TTF figures indicate that UK exports of chipboard tumbled 24.2% from 115,000m³ in January-September 2010 to 87,000m³ in the corresponding period last year. Despite these figures, some domestic producers spoke this week of securing significant additional export business towards the end of 2011. “We are seeing a good development of exports,” said one.
With UK raw chipboard still cheaper than that from mainland Europe, the UK is competitive in selling abroad, he said. The removal of capacity in Continental Europe, and the prospect of further trimming in the near to medium term, meant that “there is no longer the big queue of producers looking to sell material” so “if you have the right price, you can get the business. I think this will be the case throughout the year”.
Another concurred and believed that “further restructuring in the European market for chipboard will happen” during 2012.
