As the Brexit umbrella of uncertainty hangs over the UK it is difficult for any business sector to untangle market impacts to see a clear picture – let alone provide a forecast. The shadow of Brexit means seasonal trends and expectations in the chipboard sector have been clouded and the uncertainty has produced a somewhat artificial market.
Contacts generally report good demand for P2 and P5 but it is probably motivated by customers building stocks ahead of Brexit and could be masking otherwise lower demand. “We’re doing OK,” said one manufacturer, “but it’s because a lot of industrial customers are building stock levels. If they weren’t doing that it would probably be quiet.”
Another said construction sites were fairly busy but he was unsure as to whether they were building houses for orders or stock. Of course not all businesses further up the supply chain have the capacity to hold larger volumes than normal but many are working with their supply chain to ensure there’s a safety net.
“We’re trying to keep all partners on side,” said a distributor. “We’re probably staying closer to the domestic mills but still keeping a foot in every camp because we don’t know what’s going to happen.
“The exchange rate will be one of the deciding factors. We’re trying to keep all our options open.”
There was some availability from the Continent, he added, but of course prices were slightly higher than UK-produced board. UK manufacturers have the advantage of a domestic raw material supply but they too are building stock levels to mitigate a short period of disruption. But one warned that no business could carry enough stock to manage a long-term upset.
Whether it’s down to pre-Brexit buying or the largely mild winter allowing construction sites to remain active, demand for P5 in the first quarter is said to be good.
Such is the strength of demand that at least one UK manufacturer stopped its P2 production to focus on P5.
A distributor said his sales were up around 10% on the same time last year when the ‘beast from the east’ brought snow and freezing conditions and disrupted building activity.
A merchant that supplies P5 to more jobbing builders than large housebuilders also reported strong demand, although he said manufacturers’ lead times were still longer than usual. They had reduced from six weeks at the end of last year to around three to four weeks – still longer than the normal five to seven working day service. The merchant had sufficient stock, however, to keep customers satisfied, and the longer lead times had even worked in its favour.
“We’ve secured a lot of timber frame manufacturers’ volumes – more than we had forecast – and have helped some timber frame manufacturers who would normally trade direct with chipboard manufacturers but because lead times have been out for them as well they haven’t been able to secure as much volume,” the merchant said.
Another merchant, however, believed that the P5 supply/demand balance was tipping the other way.
“We’re coming to a point where demand is now being more than comfortably met by supply,” he said.
This was probably helped, he said, by UK manufacturers continuing production over the Christmas holiday period – confirmed by at least one producer – which was generally a big shutdown time for merchants and housebuilders.
With supply and demand in better balance the steady price increases seen in 2018 have come to an end. One merchant said P5 was now 10% cheaper than a year ago, and P2 about 5% lower, and another anticipated some small price decreases.
One UK manufacturer, however, squashed this prediction.
“What the merchants don’t see is that, in most cases, UK manufacturers are very much aligned to a much broader market. It’s not just about sheet materials into the merchant market; it’s what goes into the whole market and in that whole market I believe there will be growing demand for the material because of security of sourcing closer to home,” he said.
Manufacturers were also facing continuing cost pressures, in particular the higher price of wood created by competition from the biomass market.
“The overall volumes are there but we’re having to pay a lot more because of the competition,” one manufacturer said. He believed the government was now waking up to the knowledge that burning wood for energy was not the environmental panacea that many first thought. While subsidies may not be on offer for new biomass plants the government was committed to paying those already up and running and some that will come on stream in the next year or two.
While it’s almost impossible to identify what is or isn’t a direct result of Brexit there are other factors affecting business and consumer confidence and, ultimately, the chipboard sector.
The property market has definitely slowed. This is borne out by RICS’s gloomy housing market outlook published in January. It was the most downbeat projection since records began in October 1998. The pessimism was blamed on the confusion around Brexit, but lack of supply and affordability also continued to affect the market.
RICS members reported house prices falling rather than increasing in December, marking the fourth consecutive month for the negative trend. New buyer enquiries fell for the fifth month in a row and there was also a decline in new properties being placed on the market. On the high street, several restaurant chains are struggling and rationalising rather than refitting and one contact pointed out that timber products could also be a victim of the trend for online shopping.
“If a retailer is building a large warehouse they don’t need as many timber products as they do to fit out a high street shop,” he said. With all this lack of clarity, accurately forecasting the future is as likely as predicting next week’s lottery numbers. Rather like death and taxes, the only other certainty in the Brexit murkiness is uncertainty. No contacts could be firm in their outlooks but they shared the view that the market could slow. “At the moment we believe people are building stock levels and after March it will slow down for a few months. Following that it’s too difficult to know,” said one manufacturer.
A merchant tried to look on the bright side, saying inevitably the UK would find a post- Brexit equilibrium but until that happens the market may suffer slightly.
“We’re not going to go off the edge of a cliff but it’s going to be very lacklustre for the next three to six months,” he said. One manufacturer did manage some optimism.
“We’re all planning for the worst but will it be that bad? The impacts on our industry aren’t as great as others as we’re not reliant on the export market. And if you look at some central and western European markets, the UK is holding up well. It’s not a bed of roses over there,” he said.
Another contact shared this optimistic pessimism. Although “everything’s not going to stop overnight at the end of March”, his company was particularly concerned about haulage availability. “We’re planning for the worst and hoping for the best. We might be pleasantly surprised,” he said.
The overriding concern is Brexit’s impact on the economy. If the UK were to go into recession everyone would feel it and the chipboard sector would bear the brunt of a deceleration in construction and retail.
