As indicated in our previous report, the three UK MDF producers had decided against revisiting headline prices during the summer. However, emboldened by an unusually strong midsummer period for business and by unremitting cost pressures, they have confirmed their intention to press for increases with effect from the beginning of September.
The proposed hikes – typically of around 5% – will be the first to be implemented since the very early stages of this year’s second quarter. A senior figure at one of the three manufacturers said his company would be applying the increases to all of its MDF products, while his counterpart at another confirmed that the higher price tags would be attached to raw board and MR.
As recently as early June, MDF experts had broadly agreed that the market was "no better than it was last year". But a corner appears to have been turned in terms of sentiment, with leading MDF producer contacts now offering some of the most upbeat opinions heard in recent times on the state of the market.
"I’m very positive," said one. "I am confident that the worst is over. Finally, the good-news merchants are actually getting their messages across."
While demand for MDF had remained strong from key consuming sectors such as shopfitting, he said, the previously sluggish housing industry was now displaying "really positive signs". Another producer acknowledged a significant increase in profile business as well as healthy orders from the shopfitting and furniture sectors, adding that his company appeared to be "a little bit busier across the board". He also alluded to an upturn in building activity and its positive downstream influence on many other areas of MDF consumption.
In contrast, sales of veneered MDF have been "quite quiet" at relatively stable price levels, with distributors appearing to be focused on keeping their stocks low. Indeed, one contact told TTJ that some distributors have been cutting their stocks and ranges of veneered MDF to such an extent that he feared customers would be driven increasingly towards melamine alternatives "because they now can’t always get what they want".
Although the poor quality of some veneered product was also helping the melamine cause, he said, some customers would always seek a real wood product – notably those in the furniture business. In this regard, oak veneer remained completely dominant, he added.
Looking at the MDF market overall, however, even the most guarded contacts were "fairly confident" about sales prospects for the remainder of this year, even though some foresaw no change in the trend, established over several years, of most buyers being extremely reluctant to purchase for stock. Several contacts were particularly enthusiastic about order levels in July. A producer stated: "We have had a little more business than average for recent summers, and July was better than many months in the first half of 2013."
A leading distributor described July as "an exceptionally good month" for raw board, while MR sales had been "pretty good" too; but in the year to date, he added, sales of standard MDF were "very slightly down" on 2012, whereas bookings for light and ultra-light products had seen an improvement. Another distributor stated that, in terms of orders, more normal summer service had been resumed in August; he also described competition among UK distributors as "fierce".
Price confidence There appears to be widespread confidence that the MDF price increases planned for September will stick – despite several contacts reporting evidence of deals having been done following the hike early in the second quarter. One industry stalwart was particularly impassioned on the subject, contending that any "leeway" shown on new price levels can quickly erode buyer confidence. "Nobody wants to be left sitting on overvalued stock," he said. Other contacts – including producers and distributors alike – played down the impact of what many called "isolated" deals, with one of them suggesting that better terms had been made available only to favoured customers and for volume business.
Certainly, the majority view was that the proposed September price increases are well timed and should be accepted reasonably quickly. For example, a major distributor argued: "If producers don’t go now [with higher prices], then they might not get them. They need to reinforce the fact that their costs are higher and that they need the increase." An attempt to implement higher prices any later in the year would be more risky, he said, "because people tend to get even more hand-to-mouth in their buying the nearer Christmas we get".
Indeed, MDF producers are using the argument of rising costs to help justify their proposed price increases. According to one of them, the recent plateau in methanol costs could not mask the fact that his company’s bill had jumped approximately 20% this year and was now around 140% higher than it was in 2009. And he joined other producers in citing the "big impact" of gas and electricity costs; these have not fallen as far as normal for the summer months while "even higher year-onyear increases" are anticipated for the approaching autumn and winter seasons. Taking all this into consideration, he said, "we haven’t really got any choice" with regard to pushing for MDF price increases.
Another producer agreed that this year’s resin cost hikes had yet to be recouped and that energy-related cost pressures were likely to intensify in the remainder of the year. He hoped that, given the continuing squeeze on producer margins, the September price increase for MDF would form "part of a journey" and that values would continue to climb "at the fastest possible rate that is achievable".
Constant production MDF producers certainly do not appear to fear that the September increases will derail the significant upturn in activity anticipated for this autumn, for which they have been planning accordingly. Production has remained constant throughout the summer, except for the normal preventative maintenance shutdowns. As a result, said one producer, lead times were "alright" and enough stock had been generated to accommodate "an autumn period which we expect to be busy". His counterpart at another domestic MDF manufacturer agreed: "Inventory levels are under control and we are in good shape heading into what should be a busy September."
Their confidence has also been bolstered by the lack of pressure from imports. Although near-Continent suppliers with an established foothold in the UK market have been shipping here, other producers on mainland Europe continue to be deterred by the higher transport costs and by a largely unhelpful currency exchange rate.
In its results package for the second quarter, panel producer Norbord noted that sterling had continued to trade in a range that "improved sales opportunities within the UK, slowed the flow of Continental European imports and supported Norbord’s export programme into the Continent". Meanwhile, latest figures from the Timber Trade Federation indicate that UK imports of MDF were 7.5% higher (at 183,000m³) in the first four months of 2013 compared with the corresponding period last year, while exports fell nearly 27% to 57,000m³. Another of the UK MDF producer said it had become more difficult to take advantage of export opportunities because of increasing competition in key consuming regions from new producers around the world.
Norbord also noted in its latest financial report that MDF prices in Europe had been 3% higher in April-June this year than in both the preceding three months and the corresponding period last year.
