Summary
• Manufacturers have given the distribution chain time to absorb this year’s price increases.
• Resin and energy costs have stabilised.
• Sustained summer demand means manufacturers have little capacity to take on new customers.
• There is concern that rising prices are opening the door for imported material.
• Last year European MDF production rose by 5.6% to 12.4 million m³.
Against a backdrop of persistently healthy demand and restricted supply, domestic MDF manufacturers appear likely to announce further price increases in the fourth quarter – and possibly even earlier in one case.
However, many operators further down the distribution chain feel that the market would benefit from an extended period of price stability in the wake of the series of price increases introduced earlier in 2007.
This year’s pattern of price increases every two months has been interrupted as manufacturers have looked to allow the distribution chain some additional time to absorb higher prices. However, these same manufacturers are also adamant that the process of steady price progression must be maintained in order to underpin margins, especially as the next few weeks and months are expected to yield the traditional post-summer upturn in order levels as well as significant increases in timber costs.
September price rise
A senior spokesperson for one of the three leading UK producers said that his company could announce the next price increase before the end of September. Another indicated that a price increase was “still a distinct possibility at some stage in quarter four on the standard range of MDF products”. The same contact added: “We are at a comfortable level but there is still potential for increases on some MDF products which are still falling short of giving us an acceptable margin.” Price increases implemented around the turn of the half-year averaged out at around 7% but did not extend to some specialised MDF products.
The other domestic MDF producer also reported above-average demand during the summer – notably on the mouldings side of the business. A senior spokesperson said that there might be scope to raise prices on certain products soon, quoting standard grade and MR MDF sales into the construction sector as an example. At the same time, he underlined that “supply rather than price” could emerge as the key issue; the company’s stock levels heading towards the end of the traditionally quieter summer period were merely adequate, he said.
The manufacturers acknowledged that certain costs – for example, those relating to energy – had stabilised recently, while resin costs had actually weakened to some degree. However, they also pointed to the likelihood of significant timber cost increases over the next few months, with one of the producers anticipating “double-digit” percentage hikes.
Furthermore demand had remained sufficiently strong during the summer to ensure a continuing tightness of supply, leaving them with little latitude to take on new clients or to find additional volumes for core buyers.
Heavy demand
“We still have little or no inventory and there has been a heavy demand throughout the summer; we would be very reluctant to take on new business at the moment,” said one. Another added: “We have not been able to build stock – which is unusual. We are not looking too much for extra customers.” In pure volume terms, the latter added, MDF sales in July and August had been a “double-digit” percentage higher than those recorded in the same months last year, with flooring and faced MDF among those segments to turn in “very strong” performances.
The end of the summer holiday period is expected to boost demand even further. Heading into this traditionally busier time, there is still a considerable discrepancy between the lead times of the major domestic producers. Two of the companies are operating on lead times of between six weeks and two months while, at the opposite end of the scale, the other is working on a “more or less ex-stock” basis.
Domestic producers insisted this week that any decision to raise MDF prices would not be taken lightly. One said: “There is some concern at the ability of furniture manufacturers in particular to pass on price increases to their own customers.” Another said: “We know that there were a lot of MDF price increases in the earlier part of the year and we want our customers to have a period to pass on these increases, but they also have to be aware that this is not going away.”
While sector experts recognise the importance of maintaining a high value for MDF, some doubt the wisdom of implementing price increases in the near term; indeed, several contacts suggested that MDF prices might well have reached a natural peak – at least for the short term – in terms of customers’ ability to pay. One industry figure said this week that any price increase should be ruled out of the question “until November at the very earliest”.
Another believed it would represent “a bold move” to implement another increase before the end of this year, adding that the majority of distributors had not passed on previous increases in full and, as a result, “have already accepted a lower margin”. Meanwhile, many end users – for example, in the furniture industry – required a prolonged period of stability to assimilate earlier price increases and would clearly “struggle” if further hikes were imposed in the near term. Concern was also voiced in several quarters that, in the event of further price inflation, “we might see a bit of MDF substitution taking place”.
MDF manufacturers recognise that some end users – especially in the furniture industry – need timber to absorb price increases
Some of those people arguing against a near-term increase also pointed to signs that UK price levels were increasingly opening the door to imports from non-traditional sources on mainland Europe and even further afield.
“The appearance of imported board suggests domestic producers are in danger of overcooking it,” said one industry expert. Consignments of Chinese MDF have been brought into the UK over recent months although, according to an importer, volumes have been targeted at “non-brand demand”. He added that the amount of Chinese material coming into this country has been insufficient to disrupt the market and that high shipping costs have been limiting the opportunities of exporting to the UK mainly to MDF producers in Continental Europe.
Manufacturers counter the anti-increase argument by pointing out that a further hike would still leave MDF prices below those available on the Continent and well short of those paid in the UK more than a decade ago.
In effect, MDF is currently attracting prices similar to those achieved in 1987 – which proved to be the start of a five- to six-year period during which prices moved within a remarkably tight band. MDF prices went on to scale their all-time peak in 1995, reaching levels some 15% higher than those of today.
Holiday season dip
Some Continental producers have witnessed a holiday-related dip in demand and some improvement in supply, although experts report no great willingness among these overseas manufacturers to “field orders that fall outside their normal production comfort zone”, which suggests that they are largely comfortable with current demand patterns. Given that there has been no significant change in economic conditions over the summer months, the Continental MDF market is expected to regain its former vigour once the holiday period comes to an end.
The recent annual general meeting of the European Panel Federation (EPF) confirmed that most of the Continent’s producers are reasonably satisfied with the market outlook, albeit “overshadowed by exceptionally high increases for nearly all cost factors, but in particular for glues and for wood raw material”. Wood and glue prices soared more than 20% last year, the federation said.
MDF production in Europe rose 5.6% last year to 12.4 million m³, while consumption surged 6.2% to 11.9 million m³ on the back of “an improved macro-economic situation and enhanced construction activity”. While Europe remained a clear net exporter, the EPF warned that “Chinese panel producers are expanding their sales volumes in all continents”.
In this context, several contacts described as “worrying” the fact that China, which has the potential to become a massive exporter of MDF, is already making tentative incursions into the UK market.
