National Hickman

Chipboard producers have generally raised prices twice this year and more price hikes are planned for the second half of 2010. Producers’ costs have also risen substantially, and therefore the impact on profitability at the mills has been negligible. Lower output and the exchange rate continue to discourage European exports to the UK, and with growing concern over energy generator subsidy for wood fibre, we anticipate chipboard will become more expensive in Q3.

The OSB market is very buoyant with all producers running largely at full capacity and production being sold out across the whole of Europe. Prices are marching higher and higher, partly on the back of increased plywood prices. Manufacturers are adamant that further price increases are essential given cost pressure, and with the market sold out even ahead of the traditional building season we anticipate significant price movement for OSB and all related products for the remainder of 2010.

MDF production has increased in line with higher activity levels but stocks are critically low and prices are on the way up. MDF producers put prices up in Q1 and will do so again before the end of summer. Stocks throughout the entire supply chain are low; timber costs have risen and again competition from the biomass sector means undoubted upward pressure.

Softwood log shortages and rising prices continue to create uncertainty with the lack of logs from private forests in Sweden and Finland affecting cohesive supply. Baltic volumes are low but the UK is a willing buyer despite the higher prices. China now represents 16% of British Columbia’s total lumber exports and despite some cooling of their economy the forecasts for consumption are alarmingly high. UK sawmills are falling further behind demand and with difficult log supply and ever-rising fibre costs we are concerned that the second half of 2010 will see not only price pressure but indeed serious supply issues.

The closure of so many production facilities across the entire timber sector worldwide has led to a significant and serious all time loss of capacity. With emerging markets in Asia generally prepared to pay considerably higher prices than those currently achieved in the UK alongside the biomass factor, we anticipate challenging times ahead.

Higher fuel costs have prompted a step change in the cost of distribution and with oil likely to retrace back up from $77 towards $100 a barrel, the entire distribution sector is set to impose price increases. The earthquake in Chile has impacted the international wood fibre market and Sterling’s weakness continues to open up export opportunities for UK producers. As the UK economy emerges from its recession and the home building market comes off bottom capacity constraints and lacklustre margins all the way down the supply chain, are going to make long term relationships and committed partners more important than ever before.