Despite difficult conditions in many other parts of Europe, the prognosis for the MDF market in the UK is seemingly more positive than for several years: manufacturers have good order books across much of the product spectrum; stocks are under control; lead times have come back into the equation; planned maintenance shuts are being kept to a minimum duration; and prices are continuing to rise, with little or no resistance from buyers.
On the issue of price, increases of around 3-4% have already been implemented in recent weeks while another of the "domestic" producers has already alerted the market of its intention to introduce hikes averaging around 5% at the start of November. However, a producer whose latest increases are being applied to standard board and MR MDF was reluctant to describe market sentiment as "bullish" just yet. "There has certainly been a lift-up in the market and it’s stronger now than it has been for a long time," he said.
A fellow producer used the adjective "buoyant", although he added somewhat more conservatively: "We are optimistic that we are over the worst, but we are not jumping up and down dancing." Indeed, the former was at pains to underline the difficulty in gauging how much of this upturn was attributable to growth in "real consumption" and how much could be explained by customers buying for stock in order to beat the price increases and/or to avoid any dislocation of supply.
Despite contacts at UK MDF manufacturing operations describing their lead times as generally "normal for the time of year", supply continuity appears to have become an issue for some buyers and their response has been to increase their purchasing for stock. This is widely taken to reflect a sea-change in market sentiment given that, until now, the commercial pressures of recent years had left the majority of customers disinclined to carry much, if any, inventory beyond that required to satisfy their near-term needs.
"Most customers and distributors had reduced their stocks to a minimum but, since the market got busier during the summer, there has been more consumption and customers are putting more in stock to allow for lead times," said a producer. Another added: "Customers are already starting to look to next year. They are aligning themselves again with supply and are ensuring that they have a stockholding." And a distributor agreed: "Whenever lead times start to creep up, [customer] stocks will tend to be built as an insurance policy." While it would be wrong to suggest any shortages had emerged, he added, "one or two people have certainly been caught out with gaps in their stock".
But whatever else is underlying current buying patterns, it should also be stressed that demand appears to have strengthened for almost every application of MDF, including in the building sector. Although MDF is one of the later products to benefit from a housing market upturn, a domestic manufacturer described demand for architraves and mouldings for newbuild properties as one of the main pillars supporting the recent growth in overall demand. He also singled out shopfitting as particularly busy, with his counterpart at another MDF producer labelling this sector as "very strong" and a reflection of the fact that "significant funds are now being made available for this by the retailers". A leading distributor went further by describing shopfitting as "booming".
Point of no return
Orders for laminate flooring and for both MR and FR have seen a significant improvement in recent months, TTJ was also told this week. And despite the unrelenting competition from melamine alternatives, even veneered MDF has witnessed slightly firmer prices of late. But according to one contact, these increases suggest producers had reached the point of no return on price "and are saying in effect that they can’t go any lower". He pointed to a recent veneered MDF business casualty based on the near Continent and added: "I don’t think it will be the last."
For MDF overall, a distributor spoke of "an underlying strong market out there", with "no drop-off in the summer, like it can do". He alluded to evidence of some isolated deals having been done at times over the summer, but also said that these seemed to have disappeared more recently. But perhaps the most telling indication of the gathering strength of the market, he said, was that he had attended an industry event in recent days "and didn’t hear any negative thoughts being expressed". Indeed, the vast majority of producers and distributors contacted this week said that their MDF sales volumes were ahead
of those recorded in 2012 despite a dip earlier this year; one producer reported that all the growth "has come in the second half of 2013".
Against this positive backdrop, the obvious question is whether producers might even consider another MDF price increase before the end of the year. One of the domestic operators cast doubt on the prospect but refused to rule it out, while another said his company was unlikely to attempt a further hike this year. But he added: "If demand remains good, there will definitely be an increase at the start of the first quarter of next year."
One distributor pointed out that producers might choose to announce an early-2014 price increase during November to help promote sales in December, which is traditionally slow, while another offered an unequivocal "good" to the news that producers were already considering more price rises from the off in 2014.
Price rise justification
In terms of justifying increases in MDF prices, domestic producers can point not only to higher demand across the range of products but also to the familiar story of rising production costs. While the pressure from urea has been less pronounced of late, methanol prices increased at the start of October when at least one of the home MDF producers was expecting them to stabilise. According to his calculations, the latest 4% hike means that methanol prices have sky-rocketed approximately 320% over the last four years.
Another producer highlighted the upturn in his logistics costs – a reflection, he said, of "the economy picking up and putting more pressure on infrastructure".
Domestic MDF producers are certainly in a strong and strengthening position at present, thanks also in part to the relative dearth of competition from abroad. The trend in imports since early in the year has been decidedly flat, with incoming volumes generally restricted to ‘specials’ provided by established Continental suppliers to the UK market. Long-haul MDF imports were effectively being ruled out by freight costs and rates of exchange, a leading trader told TTJ this week. He expressed some surprise that the UK had not seen more MDF arriving from sales-strapped Continental producers – before going on to acknowledge that "the euro rate is still a barrier".
The UK’s MDF imports totalled between 43,000-47,000m³ for each of the months from February to June this year following a spike to 52,000m³ in January, according to the latest Timber Trade Federation (TTF) statistics. Thus, across the first half of the year, the UK bought in 274,000m³ of MDF – a decline of 5.2% from the 289,000m³ imported in January-June 2012.
Meanwhile, TTF figures also show that the UK’s MDF exports slumped 33% from 116,000m³ in the first half of 2012 to 78,000m³ in the corresponding period this year. A domestic producer attributed the steepness of the decline in overseas shipments to better order files at home and therefore a reduced requirement to open up the export valve.
