As with many other sectors of UK industry, for the wood based panel sector, 2016 was a year of ups and downs. The year started in much a similar vein as 2015 finished, with Sterling remaining strong against the Euro and the pressure of imported board products ever-present. This continued through the early part of the year until June, when the strength of Sterling plummeted, as a result of the decision to leave the EU. Despite a period of uncertainty in the market, this eased as the months passed and consumption of board products continued to improve in the second half of the year, with many producers reporting low stocks and reasonable order books.
During the year, large scale capital investment in the panel sector continued, with work beginning on Norbord’s new OSB plant at Inverness. Elsewhere, new capacity and maintenance investments continued at other plants, in order to capitalise on the high levels of board consumption within the UK.
As for raw materials, virgin wood fibre wood supply fell in line with demand for the early part of the year, before a series of planned production outages from manufacturers within the wood panels, biomass and pulp and paper sectors resulted in a short term surplus. This surplus then grew as the year progressed, with a major unplanned production outage reported within the panel sector and an increase in the availability of sawmill chips and sawdust, brought about by increased production in the sawmilling sector. Competition for recycled wood fibre was reported to remain strong throughout the year. The cost of chemicals used in panel manufacture rose significantly during the year. These increases resulted from adverse currency fluctuations, as well as production outages and curtailments by some manufacturers.
Beyond the shores of the UK, the majority of investment capital continues to be focused on Eastern Europe, as well as new interest in growth within the North American market. Continuation of the challenging economic conditions faced in South America put increasing pressure on manufacturers in that region and resulted in some working through a phase of restructuring, in order to maintain efficiency.
Pulp and paper sector
A more stable market in 2016, after several years of paper machine closures, led to renewed optimism in the sector. The year saw no major mill or machine closures, although there were disruptions in production due to weather related issues at some production sites. On a positive note, there were major investments in a number of mills, such as at Smurfit Kappa and Iggesund’s Workington mill, which will increase production capacity.
Demand for newsprint in Europe continued to weaken. Over the full year, 2016 deliveries decreased by 6.4%. Printing paper deliveries in Europe declined by 3.7% during the year, while SC Magazine paper fell by 3%. On a positive note, MF magazine paper and Book paper volumes remained steady.
The market for Virgin Fibre Board remained positive, with deliveries from European producers to Europe increasing by 2% compared with 2015. Profitability levels improved as a result of reduced production costs and positive currency effects.
UK producers have had a positive year, in both volumes and profitability. After the Brexit vote, favourable exchange rates resulted in an upturn in orders and profit margins.
In May 2017, Iggesund Paperboard at Workington will undergo a major investment which will increase sheeting capacity and further improve product quality.
Wood fibre supply in the UK has been fairly well balanced. The year could be described as a ‘year of two halves’. In the first few months, there was strong demand for small roundwood and sluggish demand for sawlogs, as a result of unfavourable exchange rates. In the latter part of the year, strong demand for sawlogs was seen, as a result of favourable exchange rates. This had a positive effect for woodland owners, as demand for logs started to drive standing timber prices beyond 2015 levels, finishing the year with strong increases in timber prices.
Report compiled June 2017