The domestic MDF sector has reached the fourth quarter in largely upbeat mood after a year characterised by regular upward price movements and decent levels of demand. Despite a fresh round of price increases during September, the possibility of a further hike before the end of the year is not being ruled out. Asked to sum up the current state of the market, one producer declared to TTJ this week: “We are going into the winter thinking of price increases – that says it all.”
A senior spokesperson for one of the other big three domestic MDF manufacturers talked of strong early-autumn demand and of reduced availability from some quarters. At the same time, lead times had lengthened and could be stretched still further in the near future given that demand was currently in one of its busier phases of the year. “Our view all year has been that [the MDF market] would be all about supply – and supply will be the critical issue going forward,” he said. For customers, this would increasingly mean “finding the right partners to help ensure supply”, he added.
His company had introduced standard product price increases averaging around 3% in September and the next hike was likely to be implemented at the start of next year “if not before”. That said, he went on to describe a pre-Christmas price rise as “preferable” given “accelerated signs” of tight availability and also ongoing cost inflation. Commenting on the likely scale of the company’s next MDF price increase, he said 5% “would not be unreasonable”.
According to another prominent producer figure, the UK market had quickly assimilated the 3-5% increase implemented by his own company during September. Asked whether a further MDF price increase was likely to be unveiled this year, he commented: “It depends. It will go up straight after the Christmas holiday – if not earlier.”
A supplier of veneered MDF said that, on top of rising MDF prices, significant increases for many hardwood veneers were forcing his company to consider raising its prices by up to 15% by early next year.
To some observers, MDF is partly mirroring the lift-off witnessed in the chipboard market this year. Some experts are suggesting that the steep rise in chipboard prices may have led to substitution by MDF in some instances, thereby fuelling momentum within the latter market. It should be said that not everybody subscribes to this theory.
Domestic confidence
The confidence of domestic producers in the near-term outlook for MDF has been bolstered by a number of factors. One spokesperson identified “stronger than normal” demand for the time of year across the range of MDF products, including standard board, veneered product, MR and even flooring. He pointed to evidence in some quarters of customers being put on allocation, or of surcharges being imposed on buyers placing orders solely for standard MDF as part of a bid to focus on added-value sales. At the same time, the UK was limiting its MDF imports almost exclusively to overseas suppliers with an established presence in this market; there has been little evidence of what one contact described as “cheaply-sourced supplies at dumping prices” coming from “some of the more exotic corners of the globe”.
Indeed, shipments to the UK have possibly diminished from their already low levels, as overseas producers look to concentrate increasingly on healthy demand nearer to home. The Continental European market is widely described as buoyant, with Germany providing the driving force behind this strong upturn. “While home markets remain good, Continental producers are unlikely to increase their allocations to the UK,” said one company.
With global demand for MDF at a high level, exports to the UK hold limited appeal – not least because prices in this market are at least 5% behind those prevailing on the Continent even before the additional transport costs are taken into consideration. A UK spokesperson for a leading Continental producer told TTJ: “There’s not too much 18mm standard board about and as a result we are rationing it.”
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“ There is no reason to return to the old times of low prices – it would be suicide ” |
One producer said that this already-tight supply situation was likely to be exacerbated over the coming months “because of plant closures in Europe caused by a lack of wood throughout the winter”. Although overall MDF output was likely to suffer as a result, “a lot of customers have not really realised this yet.” he said.
Customer resistance
Several distributors were complaining this week of lingering customer resistance to the flow of MDF price increases. “It has been something of a struggle for us to pass these on as fast as the producers introduce them,” said a contact, who went on to suggest that this situation had led to “silly selling” on the part of some distributors. However, according to a leading industry figure, the unmistakable message from producers was that prices were “non-negotiable”. Another said: “Producers are determined not to let things slip this time, although I’m not sure I would like to see another price increase before the end of the year.”
Summing up 2006 to date, one of the domestic producers welcomed the fact that the MDF sector had significantly improved the value of its products and that the market place had largely come to terms with the need for price increases. On the downside, producers were coming under ever-mounting cost pressure. According to a domestic producer, the recent disruption to methanol production had resulted in a double-digit percentage increase in the firm’s resin costs with effect from mid-October, while “energy and wood costs both have the potential to rise further”.
At the same time, the MDF sector – in common with other panel producers – is facing a growing threat to the availability of its raw material.
This point was underlined at the fifth European Wood-based Panel Symposium held earlier this month in Hannover when European Panel Federation president Ladislaus Döry described as “really shocking” how political opinion favouring renewable energy had led to “a waterfall of regulations and financial support schemes to promote the burning of wood”. And he added: “The big problem is that the authorities have no understanding at all of the wood supply chains from the forest to the users. Consequently, they are putting their subsidies in completely the wrong place, thereby giving the bioenergy producers the possibility to buy wood from existing supply chains above the market price, which distorts competition.”
Sectoral experts in the UK also perceive other potential longer-term threats to MDF. Notably, some are concerned about the impact on the world market if domestic demand in China were to suffer a downturn and if, as a result, the Asian giant pushed a significant proportion of its massive MDF output on to the world market. “The Chinese are already attacking our markets by competing with our own furniture manufacturers,” it was noted this week. According to a spokesperson for a company which has trialled small volumes of Chinese MDF in the UK, product quality was acceptable but a recent increase in prices had rendered it “unattractive in the near term” for this market.
Strong year end
Overall, the domestic MDF sector is relatively relaxed about the state of trade. “All the signs are of a strong end to the year,” said one expert. “There certainly isn’t any scope for price reductions because, if anything, demand is slightly outstripping supply.” Pointing to evidence of board being exported from the UK, he added: “There’s no pressure on the home producers to weaken on price.”
As for 2007, most industry sources clearly anticipate more of the same. One told TTJ this week: “There is no reason to return to the old times of low prices – it would be suicide.” By persisting with the process of regular price progression, “customers will become educated to it,” said another.
