The forward momentum in the MDF market towards the end of last year appears to have been maintained, to the extent that at least one UK producer is contemplating a couple of price increases between now and early April. Even more encouragingly, the bulk of the supply network has welcomed these higher prices and believes the market can absorb them.
Reductions in output around Christmas and the new year – some forced, others voluntary – have created a greater level of supply pressure than has been experienced in the UK for some time. With demand said to be reasonably constant, the industry is talking almost en masse in terms of four-week lead times – with the caveat that certain products may still be more readily available from stock.
‘The lead times are real – there are already some shortages showing up even on basic thicknesses,’ said one industry player. Another voiced the same sentiments: ‘We have been sweating on some stocks for almost three weeks and we are a big player, so the lead times are real.’
Better business
Another prominent figure agreed: ‘The lead times have moved out to a very healthy four weeks which allows for better forward planning.’ He emphasised that much of the improvement had been fuelled by the restriction in supplies over Christmas, arguing that manufacturers had produced less material but were obtaining a higher price per m³ ex factory. ‘It has become a better business for them to be in,’ he said. ‘They have taken a little bit of pain for some gain.’
Domestic manufacturers claimed to have increased their prices by as much as 10% in December and all are planning to introduce further, varying price increases within the next few weeks. Kronospan, for example, is proposing to increase its prices by an average of 6% on March 1 and possibly by a similar percentage in early April ‘if the order file continues as it is’. A final decision on whether to go ahead with the second increase will be reached before the end of February, TTJ was told.
More price increases
Another supplier of MDF products to the UK market confirmed that it had firmed its prices by between 3-5% from mid-January and that, if manufacturers went for further increases, ‘we will undoubtedly follow’. At the same time, however, he suggested that some manufacturers were perhaps being less firm with their price increases than they were claiming, particularly in dealings with some of their larger customers.
Another leading MDF manufacturer confirmed that the price increases of December last year had been tested and had not been found wanting. Lead times were generally at around four weeks depending on specification, although there was still ‘physical availability’ in a minority of product areas. The ongoing reduction in inventories was injecting ever more confidence into the UK market while the strength of demand for MDF on the Continent had reduced the prospect of imports being attracted to this market. ‘The pressure on us has remained fairly intense and so there will be a price increase on March 1,’ a senior spokesperson confirmed, although he preferred not to comment on the scale and range of increases to be introduced.
The same contact spoke of ‘a greater level of trading activity since October last year’ and of a ‘quite fast’ reduction in inven-tory levels. While certain MDF users – most notably the shopfitting and exhibition sectors – continued to suffer the after-effects of the September 11 terrorist attacks, demand for MDF among other major users such as joiners and housebuilders was sustained. ‘The housebuilding sector is pretty active,’ he noted in particular.
Another UK-based manufacturer said his company was ‘very happy’ with the level of MDF requirements at this relatively early stage of the new year. Demand was admittedly more static than it had been in the early boom days for MDF, ‘but we are still talking about a 1 million m³ market’, he said.
The prospect of several price rises in reasonably quick succession has not always been a pleasing one for the non-manufacturing element of the MDF trade, although on this occasion there appears to be a more widespread acceptance that the market can handle even higher prices and that there is a need to re-introduce more value to the market as a matter of some urgency.
One manufacturer pointed out that, even after his own company’s proposed increase goes through at the start of March, the average MDF price will still be approximately 15% below early 2001. The distributor sector had generally welcomed news of the further price increases in the pipeline, he said.
The same contact emphasised that, despite resin costs having fallen from their peak and despite a stabilisation in wood costs, the MDF manufacturing sector was still struggling to achieve any margin. Firm action was required to avoid any repetition of the ‘shocking’ events of 2001, with ‘every likelihood’ that downtime would be used to help maintain a more realistic value for the product. He explained: ‘We have all learned from the bitter experience of 2001. It was a watershed year for the industry in the UK because it was realised that we couldn’t keep going on like this… You have to build reserves for future investment.’
A senior counterpart with one of the other ‘big three’ domestic MDF manufacturers said the ‘scramble’ among producers to achieve volume via low prices had become far less marked, while another MDF supplier suggested a growing acknowledgement among MDF producers of the futility of competing solely for volume at a time when price levels had become unsustainable.
As has been the case for some time, melamine-faced MDF and laminate flooring have been particularly strong. One source observed: ‘The laminate flooring market on the Continent is very busy again and it is sucking in volumes of thin MDF and thereby putting pressure on the supply of other thicknesses.’
A major producer said his company’s flooring line had been ‘incredibly busy’ and that it had proved ‘a struggle to supply the levels of demand’. The UK laminate flooring market still had ‘a long way to go’ before it matched the growth of some countries on the Continent and there was an ongoing problem of prices for the product failing to reflect its mounting popularity.
The continuing strength of the UK laminate flooring market has been underlined by news that Kronospan is considering a third line at its Chirk facility. Already with an annual capacity of 12 million m² of laminate flooring at the North Wales plant, the company is investing in a new facility to produce laminate core to replace material currently brought in from other parts of the group. This new plant is scheduled to come into operation this autumn and will ‘prepare the way for a third line to come on stream more quickly’, according to a com-pany spokesperson.
HDF production
Meanwhile, Kunzgroup subsidiary KFB started up a new production unit in December to manufacture HDF for use in laminate flooring production. The plant at Baruth, south of Berlin, will have the capacity to make 150,000m³ of so-called Powerboard product per year. Under the second stage of its development programme, KFB is planning to begin commercial production of MDF through a new 150,000m³ plant by May this year. Initial output will be focused on standard quality material but the production emphasis will subsequently shift to higher qualities. According to a spokesperson, the Styleboard product will be targeted at the whole of Europe – including the UK – as well as wider export markets.
‘The state of the market when these sorts of developments come through can be very hit and miss because they can take years to come to fruition,’ said the contact. ‘It has been fortuitous for us because the MDF market is on the up, demand is strong and everybody should be pushing for higher prices.’ His own assessment of the current market even included the suggestion that ‘supply might get squeaky’ in a year from now.
The diversion of ever larger volumes of MDF into laminate flooring is creating benefits for the MDF market as a whole. Also, MDF is reaping rewards from the ongoing shift away from hardboard towards thin MDF in many applications. And with few major MDF capacity additions anticipated in the near term, some industry players are talking in terms of shortages emerging more strongly as the year progresses.
Indeed, the supply/demand equation in Europe would be tilted even more firmly in the direction of undersupply if there were any reduction in operations at Hornitex. The future of the German group remains undecided although there is speculation surrounding a buyer from the US. Whether any purchase would result in a scaling down or breaking up of existing operations remains to be seen, but the widespread belief is that Hornitex’s MDF operations are likely to survive relatively intact.
Despite the more favourable conditions now said to be established in the MDF market, scepticism has not disappeared completely from the scene. Emphasising that the trade was still in a ‘watershed’ period, one contact feared it was ‘only a matter of time’ before manufacturers began to undo their recent good work. ‘I hope they realise the value gain they have achieved in the last few weeks,’ he said. ‘They must see it as a factor of sensible production rather than increased demand.’
Crazy prices
Another, admittedly lone, voice was dismissive of the so-called revival, contending that ‘crazy prices’ were still available and that lead times were ‘nothing like four weeks’. He added: ‘Prices will go up, but then the manufacturers will just offer bigger discounts.’
Stressing his belief that there were ‘no signs of anything having changed one jot’, he said the market was still in distinct oversupply and that ‘enforced shutdowns may become a reality’.
