Summary
• The MDF sector hopes that the weaker prices will be short-lived.
• Sales volumes are steady.
• Sales of melamine-faced MDF are rising at the expense of veneered MDF.
• UK exports have continued to increase.
• The European MDF sector is said to be suffering.
A bout of price softness has caused consternation in the UK MDF sector, prompting conflicting opinions as to its origins.
However, there appears to be unanimity in another key regard: this period of price weakness is unlikely to be lengthy given producers’ ever-rising costs and the universal desire in MDF circles to maintain a value in the product that has been hard won over a considerable time-frame.
“Nobody can afford for this to become a downward price spiral,” TTJ was told this week.
Signs of weaker pricing, most notably on standard forms of MDF, began to emerge towards the end of last year as the slower Christmas period loomed, leading to a heightened sense of nervousness and uncertainty. “The market has become even more short term,” said one contact. “It’s difficult to know what’s going to happen tomorrow, let alone next month.”
One of the three UK MDF producers argued this week that, despite having held off on any downward price move for as long as possible, it had ultimately been forced to respond to more competitive pricing in the production sector, pointing also to the “suicidal margins” accepted by some distributors.
Defending market share
“We resisted for as long as we could, but in the end we had to respond to defend our market share,” a spokesperson said. “Someone down the supply chain is currently getting some excellent-value MDF.”
Some distributors “are turning MDF over for virtually nothing” and this has led to “a volatile market”, he added.
However, the same contact was quick to add that “we would be very keen to support any upward price movement” and that a widely anticipated upturn in consumption over the coming months would bolster momentum. Indeed, a senior figure with a fellow MDF producer said that his company was already considering a price increase.
“We are thinking about April,” he told TTJ. “This would give the right signal to the market that the only way that prices will be going is upwards. We can’t afford to sell cheap – those days are over.”
This view was echoed by others in producer circles, all of whom pointed this week to continuing cost pressures. “The potential for wood cost increases is always there because of the biomass dimension,” said one. Another pointed out that, when comparing figures for February this year with February 2011, his operation’s timber and gas costs had increased by around 22% year on year.
Another prominent panel industry figure insisted that the price weakness was driven by a handful of distributors looking to carve out an increased market share; however, the resulting “tit for tat” actions in the market “won’t mean any more MDF is sold”, he said.
A leading distributor argued along similar lines: “Demand has been fairly steady – it’s only the market shares that have been fluctuating. Our volumes in the first quarter have been at the same levels as in the fourth quarter.”
Sales steady
Indeed, while distributor margins on standard items of MDF were described this week as anything from “non-existent” to “suicidal”, the general view is that sales volumes in the MDF sector as a whole have been “steady” at worst. One of the domestic producers went as far as to say that, for the January-February period, his company’s production and sales volumes were both higher by “double-digit” percentages when compared to the first two months of last year.
In common with several other contacts, he identified melamine-faced MDF sales into the shopfitting and kitchen sectors as a particularly strong source of business, while sales of moisture-resistant MDF were also “doing well”. A fellow producer also acknowledged this “fairly high level of activity” in shopfitting which, according to one expert, “is always being mentioned in dispatches as the growth area for the next couple of years”. Laminate flooring sales have also been satisfactory in the early part of 2012, suggesting significant home improvement activity.
According to several contacts, MDF sales made a stronger start overall to 2012 than many had anticipated – before some of that momentum became dissipated. “Sales in January were very good but there was a drop in February,” said one.
Another said that UK consumption of raw board had been “good” in January but “a bit quieter” in the following month, adding that early-year demand overall had been “much more robust than expected”.
Another agreed that a “quite reasonable” MDF sales performance in January had helped to make up for the ground lost during what had been a quiet December trading period.
Veneered MDF
On the downside, demand for veneered MDF appears to have continued its trend downwards, fuelling a gradual decline in prices, which one expert estimated this week to have approached 10% over the past 12 months. Many buyers had switched to melamine and “don’t want to buy big loads” of veneered MDF anymore.
According to the latest European market summary from Norbord, released with its latest financial results, its panel markets remained “robust” in 2011 despite the sovereign debt crisis as well as falling business and consumer confidence across Europe. Specifically in the UK, the housing market had remained steady – with more stable home prices, modestly increased mortgage lending and unchanged housing starts.
Against this backdrop, Norbord’s European panel mills produced 7% more volume and increased shipments by 10% last year, producing at approximately 95% of capacity compared to 90% in 2010. European MDF prices “firmed rapidly” last year for an overall increase of 14%, the group indicated.
Looking ahead, Norbord underlined in its late-January results review: “Customers are taking a more cautious view of their own businesses and panel markets are expected to moderate somewhat.” Norbord’s UK market “remains significantly advantaged”, it added, by a weaker pound sterling relative to the euro which is limiting imports into the UK, supporting domestic prices and providing further export opportunities to Continental Europe.
Welcome exports
There is no doubt that exports have provided a welcome pressure valve for domestic MDF producers in the early weeks of 2012. One reiterated that exports now accounted for a “double-digit” proportion of his company’s overall MDF turnover and that its overseas shipments “are still growing”, helped by a currency which makes the product competitive as well as workable freight rates.
Latest figures from the Timber Trade Federation tend to bear out these comments: from January-December last year, UK exports of MDF amounted to 166,000m³ – equivalent to an increase of 20.4% over the 138,000m³ shipped abroad in 2010.
The more recent strengthening of the pound against the euro is claimed in one quarter to have “created some imbalances in the market”, with a reduction in volumes heading to mainland Europe and “more board coming into the UK”. The consensus, however, is that volumes entering this country from the Continent remain at a relatively restrained level whereas virtually no board appears to be reaching the UK from further afield. A leading importer commented: “We are seeing nothing in big volumes and nothing from what might be called more speculative sources.”
Meanwhile, MDF plants in Continental Europe appear to be facing more intractable problems than their counterparts on the other side of the Channel, with more capacity having been lost in recent months. “There will be more rationalisation of MDF production this year, which will undoubtedly create shortages of the product,” TTJ was told this week.
Another expert described the MDF market on mainland Europe as “awful”, with “deals being offered all over the place” within the wider panel sector.
