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Warning on wood prices

18 Feb 11 One of the UK's largest wood panel plants is warning the construction industry of sustained price rises due to an unprecedented increase in raw material costs. And government subsidies to the biomass industry for burning wood are making matters worse, it says.

Kronospan chief executive Ludwig Scheiblreiter is cautioning customers not to try to absorb any increase in prices. Instead distributors and retailers must pass the rises down the supply line now or face serious financial implications, because the increases are here to stay and more are expected.

Kronospan manufactures medium density fibreboard, chipboard, oriented strand board, flooring and worktops used throughout the construction industry.

All the raw materials – timber, chemicals and energy - used for wood panel production are under accelerating supply pressures, which is pushing up prices across Europe.

Mr Scheiblreiter said: “This year will be critical and decisive, even without the effects of the new age of austerity. This is not a wave any of us will be able to sit out, nor will any of us be able to continue the absorption of cost increases within the supply chain.”

Subsidies – worth up to four times the current price levels of timber residues and post consumer wood waste – are being paid to the biomass industry to burn wood to create electricity. Mr Scheiblreiter said that this “well-meaning but ill conceived” legislation on the generation of renewable energy is squeezing the availability of the core raw material and increasing prices.

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Mr Scheiblreiter wants to see these subsidies abolished. Wood should only be burnt at the end of its useable life, he says. The subsidies threaten not only Europe's wood panel manufacturing industry but also all its associated customers, including the construction industry, he said.

In addition, the main chemical used in resin for the wood panel industry process is urea. More than 90% of urea is needed as fertiliser to meet expanding worldwide demand for food. This is also putting pressure on supply and with crude oil up 40% the chemical industry’s price demands are rising.

Subsidies paid to the biomass industry are being funded via the cost of electricity, again pushing up prices. Add to this the tightening rules on carbon trading, continuing price rises in oil and gas, and the UK’s structural supply problems, and there is perpetual strain on energy demand.

Mr Scheiblreiter said: “The industry urgently needs to set up the right structures to secure future supply as price alone will not guarantee availability. These changes will be enormous. The UK is still slightly behind many Western European countries but, with its comparatively low share of forestry, it is catching up fast.

“In Germany and surrounding countries these raw material pressures have already led to major reductions in production capacities and price levels for panel products are up to 25% higher than the current UK levels.”

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