The following message is issuing loud and clear from the leading three domestic producers of MDF: “There will be no deals this summer.”
The first half of the year has seen a steady improvement in MDF prices and, quite understandably, the major producers are unwilling to take a backward step even though the summer is a traditionally weaker period in terms of demand. At the same time, however, they all acknowledge that further price increases are unlikely to be considered before the autumn when demand tends to pick up again. “We will see how the order books look at the end of the summer,” said one senior producer spokesperson. “I would hope that more price increases would be on the way after then because MDF is still being produced at loss-making levels.”
Two of the three UK manufacturers have recently introduced price rises of around 4-5%. One of them suggested this move was the latest expression of a gradual price “recovery” that the industry had been attempting since towards the end of 2003. He said that the trade should view this succession of price increases as “absolutely necessary” steps towards safeguarding the future of the MDF business. Manufacturers had made huge losses over recent years and this “financially appalling period” was not sustainable, he argued.
Recovery steps
He anticipated scope for “a further recovery step” towards the end of the third quarter or possibly at the start of the fourth quarter. Any increase was likely to cover not only raw board but also moisture resistant MDF which, he suggested, had been caught up in the downward price spiral of 2003 and which remained under-valued.
There was “still a long way to go”, he added, to complete the MDF recovery programme given that prices were currently more than 30% below the values of six years ago. Given sharp increases in costs over that period, the need to maintain upward price momentum became even more stark, he said. Indeed, recent rises in petrochemical prices have put even further pressure on producers by impacting adversely on resin and methanol costs.
The MDF trade is generally supportive of efforts by the domestic producers to inject more value into the market at a measured pace. Although one leading player described the decision to increase prices immediately ahead of the summer as “brave”, there is widespread recognition that values had slipped to unsustainable levels and that, unlike in a number of previous years, MDF is entering the summer period with a number of positive fundamentals in place.
For example, stocks are thought to be generally quite low at the moment and scope is said to be available for these to be built ahead of the anticipated post-summer upturn in demand.
Also, producers are continuing to quote lead times, as opposed to ex-stock deliveries, although these have recently shortened to around one week in the case of one of the leading domestic manufacturers, and to between two and four weeks for the other two home producers.
According to a senior spokesperson for one of these majors, his own operation was fully booked for June although balanced stocks of certain “special” MDF items were being maintained to enable the firm to react quickly to customer requirements.
Domestic demand
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“We know that orders may dip slightly in the summer, but there will be no deals this time. If the market stays broadly the same, we will be looking to increase prices again in preparation for the autumn” |
The MDF trade can also draw strength from an improvement in domestic demand during the first half of this year compared to the same period of 2003 when trading in the first six months was adversely affected by the Iraq conflict. The UK’s year-on-year consumption of MDF dipped for the first time in 2003 as a whole – from 1.15 million tonnes to a shade over the 1 million tonnes mark. However, industry experts expect consumption this year to return to – or possibly to improve slightly on – the 2002 total. And the anticipated improvement in consumption may not be limited to raw board: one contact suggested that, given growth in the timber frame sector in particular, there was likely to be increasing demand for some of the more specialist forms of MDF.
Compared to recent months, UK demand has become “a bit softer” of late in certain key consuming sectors such as shopfitting and the furniture industry. But a senior spokesperson summed up the predom-inantly positive mood among domestic producers in saying: “We know that orders may dip slightly in the summer, but there will be no deals this time. If the market stays broadly the same, we will be looking to increase prices again in preparation for the autumn.”
The position of leading domestic producers has also been improved by demand elsewhere in the world. TTJ was told: “Some UK consumers may be a bit quiet at the moment, but there is less pressure on domestic producers this year because manufacturers elsewhere in Europe and beyond are very busy.” Demand for laminate flooring on the European mainland, for example, is said to be sucking in a substantial proportion of MDF capacity. According to one contact, a North American plant with which he had connections is already quoting delivery dates into September.
The UK representative of one Continental producer suggested that the UK price for MDF was lagging anything between 10-20% behind what was available elsewhere in Europe. And he added: “Export demand is very strong in the Far East, particularly in China. There is a quickly-growing market for good quality board and they will pay the money for it.”
Cheapest in the UK
Nearly all the agents contacted this week reported that the UK was not high on overseas producers’ lists of export targets, primarily because better sales prices are available in other markets and because their own domestic demand is quite strong. Indeed, some sellers continue to maintain that MDF produced in the UK is the cheapest in the world.
Imports into this country have also been slowed by lack of shipping availability and shipment delays affecting a number of key supplier areas, notably South America. In Brazil, for example, a range of timber products are said to be building up on the docks because of shipping problems.
For a number of months, International Plywood has been importing competitively-priced MDF from South America but the volumes involved were described this week by a major domestic producer as “a relatively small part of a far bigger equation”, thereby underlining a determination among domestic producers to hold the line on price.
Importers in general are having to contend with increased shipping costs, with one of their number complaining this week: “Several shipping lines have come out with fuel surcharges and these haven’t been rescinded even though fuel prices have gone down recently.” The additional cost was in the region of £12-15 per load, he calculated.
Another factor said to be benefiting the MDF market surrounds sentiment: other leading board products such as plywood, chipboard and OSB have all been witnessing considerable price strength, and the good feeling appears to have rubbed off to some extent on MDF too. In addition, the lack of proposed new MDF capacity has built confidence in the market that supply will not suddenly run well ahead of demand.
However, there was still the occasional suggestion this week that timber firms were struggling to pass on the latest increase in MDF prices to their own customers. One highly-respected industry figure said some importers were being “very aggressive” in their approach to the market and that some UK- and Irish-made product was being traded at “silly levels” in a bid to hold on to market share. He insisted: “There are still some cheap sellers in the market right now. We want to see UK importers and distributors reflecting replacement costs in their prices.”
At the same time, the same contact echoed the general market view in describing as “commendable” the resolve of domestic producers to hold their higher price levels.
