Summary
¦ Demand has slowed in the fourth quarter.
¦ Prices will rise early in the new year.
¦ The increase is likely to be larger on faced MDF products.
¦ The freezing weather has caused delivery problems.
¦ Imports have been stemmed as UK-produced MDF is cheaper.
¦ Continental producers are expected to take downtime.

Outside UK producer circles, the consensus within the MDF sector is that demand for standard board has tailed off in the fourth quarter. The only point of debate is when this decline set in: some say that sales began to dry up in November whereas others point to orders starting to sag as early as the previous month. As for December, “nobody wants to hold any stock”, said a leading distributor. “Customers don’t want to take anything they won’t be using before Christmas.” Supplies of MDF can be obtained “within a week”, another contact added, “and so there is no need to be keeping a lot of stock.”

Demand for non-standard items has remained relatively stable whereas ‘commodity’ items such as 18mm standard board are struggling to attract business in a UK market dominated by “hand-to-mouth” purchasing. UK demand for veneered MDF also took an early break for Christmas, TTJ was told.

Latest feedback from home producers is more upbeat. One said that his sales had continued to record double-digit year-on-year growth through November – although he also acknowledged that volumes were still trailing the levels recorded in pre-recession 2007. He said his plant would continue to run over the Christmas period, and added that stocks were at a relatively low level.

In recent years, price increases of around 5% have become something of a commonplace in the domestic MDF market. But hikes on this scale are currently “inadequate” to recover the escalating cost of timber, resin and energy, and so the next round of price increases could be more ambitious, warned a spokesperson for a UK producer.

Also, from his own company’s perspective, the increase would not necessarily come into effect at the start of January and could be delayed even into February. Having noted that his company’s most recent price increase of around 5% had been imposed on standard and MR MDF at the start of the fourth quarter, he added: “We need to get over December first and see what happens.” The final month of 2010 is throwing up “a real dilemma”, he added, with many customers having not wanted deliveries after the week beginning December 13.

Weather conditions

At the same time, adverse weather conditions have created logistical problems; there have even been examples, the producer said, of a lorry-load of product arriving at a customer’s premises to find it closed; and distributors reported that a number of their depots were unable to dispatch lorries for several days at a time. Based on its experience last winter, one domestic MDF producer said that it had bought more timber than required during the course of this year in order to insulate itself against severe weather.

“The end of January or early February” has also been chosen by at least one other home MDF manufacturer for its next price increase. The hike on standard board would be kept around its now customary level of 5% to give the market every opportunity to assimilate it, TTJ was told. However, faced MDF products are likely to undergo bigger percentage increases to make up for the fact that “they have been treated more carefully [in price terms] in 2010”.

Meanwhile, a prominent overseas supplier of MDF to the UK said that its prices for non-commodity items destined for this market would increase by between 3-5% in January.

Rumours of UK MDF manufacturers potentially demanding double-digit percentage increases early next year have alarmed many in the industry. A leading distributor commented: “It wouldn’t surprise me if they put up prices early in the new year but it’s getting to be a struggle to pass them on. Even 5% would take a couple of months to get through.”

However, MDF producers appear committed to pursuing a course of regular price increases. “Our industry is not in the mood to lower prices. We have all taken a hit and there is only so much you can take,” said one.

According to leading distributors, MDF producers are rejecting out of hand what have been described as “pot-stirring” attempts by end users to talk down prices. Further along the chain, however, there are reports of some distributors “running on rebates” while others are declining to take orders for “commodity” MDF thicknesses such as 18mm unless other more lucrative products are added to the customer’s shopping list.

Downtime

If the market refuses to support higher prices, production downtime would be “the preferred option”, a producer said. However, producers are clearly hopeful that market-related production stops can be avoided. “Some of our customers are quite busy,” said one, pointing by way of example to the shopfitting sector.

There is more good news for UK MDF producers in that imports have been reduced almost exclusively to those value-added items which are not universally available. The main reason for this is that standard forms of MDF produced on this side of the Channel are “undoubtedly the cheapest in Europe” by at least 8-10%, TTJ was told this week. Indeed, this gap between domestic and mainland European prices has been sufficiently wide to induce more UK exports to the Continent. According to one of the home producers, exports currently account for more than 10% of his total MDF sales and are dominated by standard board. The export outlet is helping to sustain full production levels, said a domestic producer.

Flows between the UK and mainland Europe could be influenced if forecasts of capacity curtailments and closures on the Continent prove to be accurate. “There is an absolute mindset in Europe that they will stop producing rather than produce at a loss,” a UK-based spokesperson for a Continental manufacturer told TTJ. “Producers in Europe are already saying that, having stopped at Christmas, they will stop again in January if they don’t get the prices they need.” Another contact agreed that plant closures on the Continent were a distinct possibility in the first half of 2011.

Looking back at 2010

The consensus as 2009 drew to a close was that 2010 would be an altogether more difficult year for MDF producers, distributors and consumers in the UK. But the year now ending has defied the expectations of most by providing less volatile conditions, leading to generally improved returns on stable to slightly higher volumes. While new build projects have been hard hit, smaller builder operations “have carried most of the merchants through this period”, one contact said.

Unfortunately, the fears that had prefaced 2010 have largely resurfaced for 2011, especially as major capital projects are being undermined by swingeing public spending cuts.

One supplier said there were a lot of uncertainties surrounding next year. “I expect volumes will be around the same – but the problem will be getting the money in,” he said. Having underlined his view that credit control for the MDF sector would remain “crucial”, he warned of significant casualties within consuming industries.

Another leading figure within the panel distribution sector said the MDF industry must adapt to the reality that demand was unlikely to improve significantly – if at all – over the coming year. “My feeling is that overall demand in 2011 will not be as good as it was in 2010,” he predicted.

Domestic MDF producers agreed that demand in 2011 would be “flat” to “depressed”. But one of them was quick to underline: “I also see rising prices.”

Domestic GDP is widely expected to grow next year, raising hopes of an improvement in business conditions across key MDF-consuming industries such as construction, he added.