For some of the key segments of the UK chipboard trade, the summer has proved busier to date than many forecasters had been predicting, with several producers reporting reasonable levels of activity in July and decent order files for August. On a further positive note, prices are understood to have held fairly steady despite the seasonal lull in trading activity.

A leading domestic producer suggested that conditions had been helped by the fact that some manufacturers had taken maintenance and investment-related downtime ahead of the summer period. And while there had been no scope to raise prices in recent months, he added: “I wouldn’t like to rule this out because costs have continued to rise.” He confirmed that his company would review its chipboard prices in August but was quick to add that “this doesn’t necessarily mean that they will go up”.

Another producer believed chipboard prices were unlikely to rise for at least the next two months despite particularly strong increases in resin and wax emulsion costs, as well as the over-arching impact of higher energy prices for the year. He reported price-based “attacks” from some manufacturers attempting to sell volume but suggested the market had largely withstood this pressure. Asked whether signs of economic weakness in the UK as a whole were affecting the chipboard market, he responded: “The downturn has been gradual. It started back in August last year and really hit us at the beginning of this year. We managed to hit our budgets for the first half of this year and are looking forward to further improvement in the second half.”

Flooring market

The raw board market has shown signs of improvement recently whereas the views of industry experts were split this week on the state of the flooring market, with descriptions ranging from “tough” to “more active of late”. According to a UK specialist in construction-grade chipboard, demand had proved to be “resilient” over the summer, although there had been no scope to improve prices to compensate for increases in costs. The UK furniture trade, which continues to suffer casualties, is feeling the pressure from imports of finished product and componentry.

One contact suggested that some European manufacturers of melamine-faced chipboard had become “a little loose on their prices so as perhaps to ensure their volumes”. Turning specifically to the UK market, he suggested that less optimistic news from the housing sector was being reflected in lower demand for MFC for kitchens and bedrooms. Sentiment has not been helped by the recent forecast that UK house prices will drop by an average of 5% by 2007.

The spokesperson for a leading panel products supplier observed that “nobody is getting rich out of chipboard” at present, not least because of rising costs and falling consumer confidence.

He went on to suggest that his company had been “squeezed out of the flooring grade chipboard market” because independent merchant buying associations and the larger individual buyers were now making direct approaches to manufacturers for their supplies. “We now offer it only if it’s requested as part of a package,” he explained.

Furthermore, the UK remains a largely unattractive export proposition for a broad span of overseas chipboard producers. A UK company specialising in Latvian board, for example, said that his mill was reasonably well booked with domestic and eastern European business and that low UK prices were restricting exports to this country largely to “specials”.

Latvian recovery

Staying with Latvia, the recent European Panel Federation (EPF) meeting in Riga confirmed a “solid recovery” in the chipboard market during 2004 after three years of “sluggish” growth. Within its member countries, which account for around 90% of total European output, chipboard production amounted to a record 34.3 million m3 in 2004 – an increase of 5.2% over the 2003 total.

According to the EPF statistics, UK production of chipboard increased by 4.9% last year – from 2.246 million m3 to 2.356 million m3. Europe’s leading producer – Germany – saw its output total jump by 5.7% to 9 million m3 while the largest production increase of 25.3% was registered by Romania. The only leading European producer to witness a fall in its chipboard production last year was Belgium; its total dipped 4.1% to 2.027 million m3.

Within EPF member countries, real consumption rose by 5.8% during 2004 to 31.1 million m3 to approach the record set in the year 2000. Additional momentum was provided by demand from eastern European countries where the rapid development of domestic furniture industries represented an important outlet for the chipboard industry. In the UK, real chipboard consumption climbed 5.5% from 3.206 million m3 in 2003 to 3.381 million m3 last year; imports remained virtually unchanged at a shade over 1.1 million m3.

Overall production capacity in Europe appeared to bottom out last year at 35.5 million m3 and, in 2005, EPF expected the industry to experience its first renewed overall production capacity increase since 2001 with new schemes slated to push the capacity total up to nearly 36.1 million m3. “With some new capacities coming on stream in 2005 and 2006, the prospects for further growth in production and demand are favourable for the chipboard industry, which also enjoys a good operating rate and a healthy supply/demand balance,” according to EPF.

On the news front, mid-July brought confirmation that Pfleiderer AG was to acquire the engineered wood operations of the Kunz Group in Germany, Canada and the US. The Kunz Group operates in Germany at sites in Ebersdorf and Gschwend, where it produces around 750,000m3 of raw chipboard, and in Baruth where it produces around 450,000m3 of MDF/HDF.

In North America, the Kunz Group is represented through its 100% affiliate Uniboard Canada Inc – a company which operates at nine sites, produces approximately 1.2 million m3 of chipboard product, and is a North American market leader in laminated flooring. During 2004, the acquired Kunz Group activities realised global sales of €556m and profits of approaching €85m.

With five sites in Germany and two sites in Poland, Pfleiderer Engineered Wood achieved sales of just under €760m in the most recently completed financial year.

Pfleiderer AG chief executive officer Hans Overdiek said the acquisition of the Kunz Group was expected to yield synergy benefits in terms of higher productivity and improved cost structures. His company would become even more of a global player as a system supplier of engineered wood for the furniture industry and interior design.

Strategic alliance

Indeed, observers have been viewing this acquisition as a logical strategic alliance in a world where very few successful, smaller-scale chipboard operations remain.

Pfleiderer AG has focused particularly on producing melamine- and laminate-faced chipboard products; furthermore, the group has looked eastwards for its expansion, for example, to Poland and Russia.

By contrast, the Kunz Group has expanded in North America and has focused production in Europe on raw board aimed at the construction industry. While the effects of the acquisition on overall capacities have yet to be clarified, industry insiders expect little change since both businesses have been successful in their own right.

As for domestic developments, it was confirmed this week that Egger UK has completed a public consultation exercise on its proposal to invest approximately £100m at its Hexham production site, a project that would involve the installation of a state-of-the-art ContiRoll continuous production line. TTJ was told that the project was scheduled to go before the local authority planning department during August.

The company confirmed earlier this year that, if the investment project received the green light, production of P2 and P5 grades of chipboard would remain the major focus at Hexham where capacity currently stands at around 440,000m3 per year.