When the three UK MDF producers announced plans to raise prices towards the end of last year, there was widespread concern that fragile economic conditions, broadly negative sentiment and the Christmas break would scupper market acceptance. In the event, producers and most leading distributors report a reasonably smooth transition to the new prices; furthermore, at least one of the producers is already alerting customers of its intention to raise prices again before the end of the first quarter.
In early November the three producers began to implement price increases of typically 3-4%, mainly on standard board and MR. Further hikes have followed in January, including on some faced MDF products; once again, there are no reports of major difficulties in pushing these through. While a distributor confessed to being "quite surprised" at being able to pass the increases on, he said there was little or no evidence of deals being done.
Order levels have fluctuated considerably since the increases were introduced. A relatively busy November and early December were followed by a steep decline in purchasing interest well ahead of Christmas as buyers reduced their stock prior to the festive break or financial year-end. One producer described December sales volumes as "a disaster" owing to the extended holidays taken by many customers. By contrast, January began with relatively robust demand – partly because some consumers were forced into restocking.
Inventory levels
While some downtime was taken around Christmas, a spokesperson for a major domestic producer said his company chose to run throughout the holiday period, enabling a return to "normal" inventory levels. "Lead times are also normal for us," he added. One of his competitors said a week-long planned preventative maintenance shutdown had allowed the business to have "no issues with inventory" and to respond efficiently to the "healthy order files" of early January.
Capacity closures last year have brought more balance to Continental Europe’s MDF market. However, demand appears to be generally more robust in the UK than in mainland Europe. One international trader commented: "The UK seems to be firing on three cylinders whereas the Continent is barely firing on one." But even in the UK some products are much quieter than others, including veneered MDF, which seems to be coming under ever greater pressure from rival melamine.
Having pushed through increases in late 2012, domestic producers made clear this week that the next price hike might occur soon. In addition to the plans already being put in place by one manufacturer, another would not rule out making a move before the end of the first quarter while the third said an increase similar to that implemented in November could be sought "possibly at the end of the quarter or in early April".
Both cited rising costs as the main reason for increases, with one highlighting his high winter energy bills and an 8% increase in methanol prices effective from January 1. The other added: "The ultimate customer is still getting the benefit of cheap MDF at the moment."
UK sales prospects for suppliers on mainland Europe and beyond are strikingly familiar. With the exception of small volumes of largely "special" category items, there is "nothing much coming onshore – and it’s not for the want of trying", a leading importer said. The key factors creating this situation were "unlikely to change in the near future", he added. "The transport costs are against it and prices would need to go higher in the UK."
Latest figures from the Timber Trade Federation (TTF) reveal that UK imports of MDF slid 13.5% from 538,000m3 in January- October 2011 to 465,000m3 in the same period last year. In contrast, UK exports continued to benefit from a relatively helpful exchange rate and duly jumped 20.8% from 140,000m3 to 169,000m3. A domestic MDF producer told TTJ that his overall sales volumes had been noticeably higher in 2012 than in 2011, but he also acknowledged that the increase was due almost entirely to greater export activity. "UK sales were pretty stable," he said.
The TTF statistics confirm that UK exports were significantly more robust in the first half, then appeared to lose some momentum, recording a year-to-date low in October.
Norbord again highlighted the import/export situation in its latest results package covering the third quarter, noting that the pound/euro exchange rate had effectively "improved sales opportunities within the UK, slowed the flow of Continental European imports and supported Norbord’s export programme into the Continent". It added that MDF prices fell 2% between the second and third quarters of last year but ended the latter 3% higher than at the start of 2012. Of course, these observations were made ahead of the aforementioned fourth quarter price increases by UK producers. One distributor calculated that MDF prices are now around 7% higher than in March 2012.
Even though MDF usage in housebuilding applications is relatively limited, any positive signs from this sector must be regarded as good news for panel producers as a whole, said one producer. He made this comment on the same day that an RICS survey indicated the housing market in some parts of the UK might now be "over the very worst". With confidence said to be growing in the sector, surveyors are expecting house sales and prices to increase during the first quarter.
But while housing market prospects are perhaps slightly more positive, some concern has shifted to the retail sector as the economic downturn coupled with the trend towards increased online shopping continues to claim high-profile high street victims. "All this will ultimately have a negative effect on store builds and refurbishment programmes, and therefore on MDF," TTJ was told.
EU Timber Regulation
Returning to the upside, a producer said the EU Timber Regulation, which comes into effect on March 3 (see pp16-23) and will require proof that wood-based products are from a legal source, could prompt MDF to "increase its range" and therefore its sales opportunities. His view was applauded elsewhere although some argued that any volume benefit for MDF was likely to be marginal.
Overall, MDF producers appear to be entering 2013 with a modicum of optimism, with at least a couple anticipating higher sales volumes than in 2012. But as a leading distributor was quick to point out, margins rather than sales volumes have been the key concern throughout 2012 and heading into 2013. He added: "Standard MDF is not a high-value product – it costs as much to transport it as a higher-margin product such as veneered MDF. Perhaps we need to be more selective about how we sell it, making sure that orders for standard MDF are supported by higher-value, higher-margin products."
