The market fundamentals for MDF are more robust than for some. Lead times have continued to move out, demand has given cause for satisfaction, stocks have declined markedly since the start of the year and recent price increases have faced only a modicum of resistance. Indeed, leading domestic manufacturers are talking of further price rises soon.
As one industry source put it: ‘Prices are firm and long may it continue. There is more confidence in the market and demand has picked up. Spring is in the air and there is a spring in everyone’s step.’ And even the less confident voices were at least prepared to invest in hope, with one saying: ‘Everybody has their fingers crossed that prices will stick and that nobody will break the line.’
A leading domestic producer this week cautioned against over-exuberance by noting that prices are ‘still far from healthy’ after several years of consistent decline that had culminated in a ‘quite desperate’ 2001 for the entire supply chain. Prices had returned, in broad terms, to the levels of last summer but confidence had improved to such a degree that industry experts believe the so-called summer ‘silly season’ – when MDF demand falls because of the holiday period and relative bargains become available – may be avoided this year.
Lead times lengthen
With domestic manufacturers talking of ‘phenomenal’ order intake, delivery dates are hovering between four and six weeks. One of the ‘big three’ home producers confirmed this week that his company was on five to six week lead times and that schedules were ‘almost full for the whole of May’. There are still suggestions that delivery within days remains a possibility if the required material happens to be lying in stock, but the fact is that mill inventory levels – and indeed, stocks everywhere – have been falling smartly over recent months.
The market improvement has been such that one producer announced a 5-6% price increase in March and confirmed plans this week for a further increase of up to 5% for June. The other domestic producers were also happy with how earlier price increases had held firm and were certainly not ruling out the possibility of further rises in the near term. A senior figure commented: ‘We are seeing a hell of a lot of demand and record production.’ According to several industry observers, production downtime has been responsible at least in part for sparking the current improvement in market conditions, with acknowledgement from the manufacturing sector that production had been interrupted ‘partially to get rid of the build-up of stocks’. Internal technical issues had also played a part in the decision, noted one manufacturer.
In practice, the glimmers of recovery seen early in the fourth quarter of 2001 became stronger following the Christmas holiday shutdowns and subsequent periods of downtime, with delivery times virtually doubling from the average of three weeks seen at the start of the year. ‘Early January saw quite an upturn in the distribution and manufacturing markets,’ said one of the main producers. The kitchen and furniture industries were also described as busy, partly as a result of the house price and home improvement booms.
Panic buying
With many customers running on low stocks at a time when lead times are growing longer and prices are rising, an element of panic buying has been induced. Despite the improvement in the UK market, several experienced players were nervous about talk of even higher prices only weeks ahead of the summer when demand usually drops off. ‘Demand has outstripped supply – albeit temporarily,’ said one. But when full production meets lower summer demand, the market ‘may go down further than it has come up’.
Another contact agreed that all wood based panels remained ‘grossly undervalued’ but reported some disquiet within the distribution sector about the higher prices introduced by manufacturers. ‘Some are sceptical but they are still pushing for them,’ he said.
Indeed, there was even a repeat of the suggestion made frequently over recent years that domestic MDF manufacturers should consider following the lead of their Continental counterparts by taking two weeks of downtime during the summer holidays. ‘It is in their own hands,’ said one expert, who went on to warn that excessive price increases at this stage might prompt overseas producers to look at the UK with renewed interest.
Discounts
Such confidence in the manufacturing sector has been welcomed elsewhere in the MDF sector. Musing on the fact that it had been ‘a long time since we have had a summer that wasn’t silly’, one source was confident that fundamentals were pushing in the direction of higher prices but was concerned that some large-volume buyers would still be able to obtain discounts and that the necessary price increase would therefore be delayed. ‘The manufacturers should be going for bigger percentage increases,’ he maintained. Another added: ‘The market could certainly take a bit more on the price front.’
Also with MDF mouldings, there was a complaint this week that attempts to achieve valid and necessary price increases had been undermined by the reluctance of competitors to follow suit. At the same time, the contact confirmed mouldings demand to be ‘not bad but not wonderful’.
The market for veneered MDF has remained steady and margins have been largely maintained.
The two Hornitex MDF plants in Germany are said to be running at full capacity while talks continue between the group’s receiver and two potential buyers. According to latest reports, Bridge-Point Capital GmbH and Orlando Management GmbH have tabled unsuccessful approaches for Hornitex but are understood to be preparing further offers to buy all group operations as a single entity.
Also on the company front, the MDF sector has been keen to gauge the likely impact of the recent merger announced by Weyerhaeuser and Willamette Europe Ltd. During a three-month transition period integration teams are looking at how best to combine the companies.
