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UK chipboard market remains calm and stable
[May 29, 2024]


The UK chipboard market is quiet, but it¡¯s becalmed rather than sinking, according the report released by TTJ.

There is no doubt that UK demand for chipboard is subdued but traders are quick to stress there is still life in the market and no need to panic.

¡°We are expecting this year to be challenging but we¡¯re not feeling alarmed,¡± said a manufacturer. ¡°It¡¯s not a collapse; it¡¯s a reduction in activity which is manageable. It¡¯s a market that still has some volume.¡±

For manufacturers, the year started reasonably well, perhaps as a result of customers needing product after destocking in December.

¡°A lot of people were not sure whether prices might continue to go down ¨C then they woke up in January with the crisis in the Middle East, shipping delays, and transport rates going up and suddenly thought they had to buy more,¡± said a manufacturer.

Prices were reduced two or three times in late summer/autumn but since mid-November they have remained fairly stable. One producer said there was talk of price increases in Q2, but that would depend heavily on whether demand picked up. Others expected little movement but at the same time manufacturers are facing rising costs, putting pressure on producers¡¯ margins. One said they were working with a higher cost base than pre- Covid or the war in Ukraine, but added the inflationary pressures were not excessive.

¡°There is some upward cost pressure but it¡¯s a relatively stable environment,¡± he said.

Because of the demand hiatus, it was not possible to raise prices so producers were taking the hit on increased costs.

Another manufacturer agreed it was not a market with an appetite for higher prices but the challenge would come if costs continued to rise.

Chemical supply has stabilised and prices have come down but this is offset by the higher cost of timber residues as a result of reduced sawmill activity and competition from biomass. Sawmills¡¯ current lower output means recycled timber is even more strategically important to chipboard manufacturers.

As chipboard is largely a UK-produced product it is better insulated from the shocks other timber products can be exposed to; nevertheless, energy prices are volatile and chemicals, which are traded internationally, could be affected by shipping issues resulting from the Middle East conflict.

While UK manufacturers are resigned but reasonably happy with trading so far in Q1, merchants report encouraging interest from the RMI market, especially in protected P5 products.

¡°It¡¯s becoming more recognised as a benefit that¡¯s worth paying a bit more for,¡± one merchant told TTJ. ¡°We¡¯re increasing our turnover in chipboard by selling more added value product, not by selling more volume.¡± It is the decline in activity in the volume new build sector, however, that is having the biggest impact on P5 chipboard demand. It also affects KBB demand for P2 and decorative board.

In recent trading updates the major housebuilders acknowledge the market remains uncertain, and a chipboard contact told TTJ that the merger between Barratt and Redrow, announced in February, could unsettle the market for a while.

The latest figures from the National House Building Council (NHBC) reveal 133,213 new homes were completed in 2023, down 12% on 2022 (151,308), and new home registrations fell by 44%. Completions in the rental and affordable sector were up 10% on 2022 ¨C and at 45,649 the highest figure ever recorded by NHBC ¨C bur registrations fell by 22%.

One manufacturer, however, believed the construction market had more life in it than the headlines might suggest.

¡°Chipboard flooring goes mainly into traditional housing and that was under pressure but we didn¡¯t see the level of decline that market numbers might indicate,¡± he said.

He, and others, are optimistic that once the economy improves it will release some pentup demand for housing, and timber products. When that improvement will come is anyone¡¯s guess.

Outside the UK, the Irish market was ¡°strong with good volumes¡±, one manufacturer said. In mainland Europe, however, chipboard traders were facing the dual blows of new capacity creating more competition at a time when national economies, including that of Germany, were struggling.

¡°It¡¯s a tough time to take on more volume but these things need to be done to future proof the ability to respond to customer needs,¡± said one contact.

And this year it is difficult to know how markets and consumer confidence will be affected by the UK and US elections and the conflicts in Ukraine and the Middle East.

In the lead-up to the UK general election the political parties may produce stimulus packages for construction and housebuilding but there are no guarantees. If incentives are given, they might raise confidence but it would take time for them to be implemented.

Everyone TTJ spoke to was expecting the chipboard market to remain on a similar course for the year. One contact aptly described the market as ¡°slightly becalmed¡±, although was hopeful there might be ¡°a slight improvement¡± in the second half.

TTJ¡¯s contacts also agreed that in some ways the current market was part of the aftermath of the phenomenal boom in demand for timber products during the Covid pandemic. Although chipboard wasn¡¯t subject to the enormous price bubbles MDF and OSB experienced, it was nevertheless affected by the pandemic push.

A merchant told TTJ that pre-Covid the price was £7 a sheet for 22mm T&G chipboard and by August 2021 it had risen to £17. A year later it was £14, and in January this year he was paying £10.

¡°I have never seen anything the likes of that before in my career. That¡¯s the more shocking phase than what we¡¯re going through now,¡± he said. ¡°After the craziness of 2020 to 2022 there had to be an aftershock.¡±

Another contact emphasised the importance of not being too pessimistic about the current situation.

¡°It¡¯s a tough market but it doesn¡¯t feel like post-2008,¡± he said.

And although the market is currently in a lull, traders point to the potential demand and timber¡¯s place in low-carbon construction.

A merchant contact was also buoyed by the continuing development of chipboard and its progress as a value-added product.

When he started his career in the timber industry, chipboard in construction was ¡°8¡Á4 lumps of pretty indifferent material without much of a standard against it¡±. From there it progressed to requirements for certain densities, and then the ¡°revolution¡± of T&G boards that were the right size for one person to handle and would fit through a doorway or loft hatch. Moisture resistance became standard, boards increased from 18mm to 22mm thick, and now surface coating for flooring, and sophisticated decorative finishes are part of the mix.

Source: ttjonline.com