In what has been a largely unspectacular start to 2002, the UK chipboard scene has been enlivened by a major change affecting the George Reynolds plant in County Durham.

Kronospan‘s former deputy managing director Joe Martoccia has led an experienced panel products management quartet in acquiring the assets of George Reynolds (UK) Ltd’s chipboard facility at Shildon. The ‘multi-million’ pound deal has created a new company trading – Vertex Panel Products Ltd.

Noting the factory’s reputation for having ‘excellent’ equipment, Mr Martoccia has stated that the initial aim will be to ‘realise the true potential of the plant by adding the knowledge and expertise of the new management team’ (TTJ February 23). Speaking to TTJ this week, Mr Martoccia explained that, in overall terms, the plant had been running at around two-thirds of capacity. However, the new team was optimistic of ‘boosting the volumes going through the lines’ and of gaining market share. The plant was small relative to many of its competitors and therefore had the advantage of being able to ‘react more easily’, he said.

Opportunities

The factory’s two chipboard lines were designed to produce worktop materials and Mr Martoccia believed there were opportunities to build on this core competency. The 25.5 acre site at Shildon also boasts three profiling lines, an ‘under-utilised’ flat laminate bonding line and a cut-to-size facility.

Mr Martoccia reiterated that, while the new management team had strategies in mind for taking the business forward, the initial aim would be to realise the existing potential of the facility. At the same time, Vertex Panel Products would place particular emphasis on service levels which, he believed, had declined with regard to certain channels over recent years – possibly as a result of the heavy economic pressures acting on the chipboard sector.

The timing of the assets acquisition has not been ideal for the new management team given that some major customers will have already made their supply arrangements elsewhere for the current year. Indeed, many UK chipboard sector specialists contacted by TTJ this week believed that the arrival of the new team at Shildon would have little immediate impact on the sector, especially given that Vertex could command only around a 10% slice of the UK chipboard pie even when operating at full tilt. Others acknowledged the strength, expertise and, in some cases, the assertiveness of the management team assembled but cast a small shadow of doubt over their prospects for reinvigorating the plant’s fortunes at a time when, as one source put it, ‘prices have stabilised at a low level’.

Top heavy

Another welcomed the decision by the Vertex team to concentrate on building existing competencies rather than on ‘rushing into added-value lines’, given that some added-value areas within the chipboard sector had already become ‘top heavy’ in terms of production. He went on to say: ‘They should concentrate on quality and on picking off those customers who are most sensitive to quality so as to maximise the resource they already have at Shildon.’

Mr Martoccia’s move to Vertex has obviously prompted changes at Kronospan where Tony Meehan has been appointed UK sales director for the Chirk operation, while at the same time having Kronoplus under his wing. Meanwhile, Kronospan has confirmed the installation in January of a new rotary drum dryer at Chirk to replace a smaller, outdated unit in a development that the company estimates will add around 15% to its overall capacity.

A further major investment at Chirk is planned to come to fruition in September this year, with start-up of a new melamine-faced chipboard press which will add 1.2 million m² per year to the plant’s capac-ity. The decision to make these two major equipment investments reinforces the commitment of the Chirk factory to the chipboard sector, TTJ was told.

Vertex has emerged towards the end of a first quarter in which UK chipboard lead times and demand have remained largely steady, although several sources believed their sales levels to have been lower than average for the time of year. Prices had not shown real signs of improvement but neither were they coming under any particular pressure. ‘Producers seem relatively content with their volumes and the "silly season" prices of last summer have finally worked their way through the system,’ said one observer. Referring to the dominance of domestic manufacturers in the UK market as a whole, an agent for an overseas manufacturer commented: ‘The big producer guys are sitting on the fence with regard to price, and while they do that we are having to sit there with them.’

Price increases

A senior source at one of the UK’s leading producers was more upbeat about market developments in the first quarter, even though he acknowledged that a good level of sales for his company had not been reflected thus far in higher prices paid by customers. He said: ‘We are going to have to look for price increases – and not too far into the future.’

According to another domestic manufacturer, his company had established a price increase on flooring grade material of around 4-5% at the start of the year. The increase had held, he argued, owing to the attributes of the particular product rather than to any growth in overall UK demand. The market for flooring material was generally static and housing start forecasts offered little reason for encouragement, he suggested.

However, a spokesperson for another flooring producer said the year had started so strongly that his company had record sales in January. Demand in February was affected by wet weather that halted work on building sites but business was booming again and he expected it to continue. This strong demand had enabled the com-pany to sustain a price increase of 2.5-3% on its value-added range.

‘We have to restore some margin,’ the contact said. ‘We are busy fools at the moment’.

Elsewhere, there was concern that ‘too much material is flopping about in the market’ and that the generally static level of demand had prompted at least one producer ‘to do some mad things on prices’.

Without doubt, some of the chipboard consuming industries have not enjoyed a bright start to 2002. The furniture sector, for example, was continuing to come under heavy price pressure from its major retail customers and the difficulty of its current situation had been reflected in early 2002 buying levels. Indeed, there was evidence of some furniture companies either working short weeks or laying off staff. The office furniture sector was also appearing to struggle while the UK’s kitchen and bedroom markets had been holding their own by comparison, according to an MFC specialist.

Freight costs

A company selling Finnish-made chipboard into the furniture sector described demand as ‘static’ and identified the rise in freight costs since the beginning of the year as a prominent concern for the business. An agent for a Baltic chipboard producer reported that the buoyancy found in other export markets had meant less pressure on his supplier ‘to chase the UK market’.

Overall, chipboard consuming sectors appeared to be more cautious in their buying practices during the second half of last year and into the early months of 2002, with many still talking in terms of recessionary influences on their businesses. ‘What we need in the chipboard industry is an injection in customer confidence,’ confirmed one leading player. Indeed, the hope was expressed that the ripples of increasingly positive economic sentiment in the US might ultimately lap UK shores.

One long-running story that is approaching some sort of resolution is the future of German panel producer Hornitex Werke, whose interests include five particleboard lines and two MDF lines. Having been in the German equivalent of receivership for the past nine months, the business has attracted interest from four potential buyers although only two are said to be serious contenders. A takeover deadline has been set for April 1 and the UK industry is awaiting with keen interest the outcome of negotiations to gauge the likely impact on their overall market.

That said, few sectoral experts anticipate a disappearance of Hornitex’s chipboard output from the market, even though such a development would be broadly welcomed for its positive impact on the supply/demand balance. One contact suggested that, from the political standpoint, there was too much to be lost if this element of the Hornitex operation were simply allowed to fold. For his part, the insolvency administrator Dr Werner Schreiber was still talking this week in terms of trying to preserve the group as a single entity, adding that it had performed successfully over the past six months.

European holidays

Looking ahead, a couple of contacts pointed to the abnormally large number of holidays taking place in Europe during May and suggested these could have a ‘distorting’ impact on the market by extending the summer season. ‘It will take some capacity out of the system but it will also mean that some of the customer demand will not be there,’ said one observer.