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Water vapour and condensation is created when virtually any kind of fuel is burnt with some fuels producing more water vapour than others. Providing you can keep the water in its vapour state, by maintaining the flue gases from your stove at the highest possible temperature until they exit the flue system, then usually they won't cause any problems. However, if they start to cool down too much they will form moisture on the interior surfaces of the flue system, potentially cooling the flue gases even further.
Unfortunately a combination of sulphur compounds from the flue gases and sulphates in the brickwork produce moisture which is effectively a mild acid which over time will attack the brickwork and cement joints. in the worst cases it can eventually seep through the brickwork. Burning wet or unseasoned wood will only exacerbate the problem.
Generally speaking, the taller the flue and the better insulated it is, then the better the up-draught will be, thus minimising the heat loss and reducing the chances of producing problem condensates. These blackish noxious liquids can ruin decor and stain exterior brickwork as well as create an unpleasant odour in your home. A combination of the hottest possible flue gas, a good up-draught and using dry, well-seasoned wood fuel will all help to minimise this potential nuisance. Flue pipe and clay and concrete liner joints, as well as other joints in a flue system are all designed to avoid condensate leakage and allow the condensates to run down and inside the flue. However, because these joints work in reverse to other piping systems (eg. the female link must point upward) some builders, odd-jobbers and DIYers simply do not understand this important issue and fit them upside down. For the same reason twin wall flexible liners must also be fitted in the correct direction.
Lining the chimney with an approved flue liner, which is also acid resistant, and then insulating around it with vermiculite backfill will help prevent any further condensation by reducing the heat loss which causes the condensation.