The prolonged period of recovery in the MDF market came to an abrupt end in the first quarter when standard grade prices re-visited levels last seen towards the start of 2002, although the more specialised product areas generally experienced less sharp declines. Many in the trade are confident that this fall in prices represents little more than a ‘blip’, but there is nonetheless widespread concern at the speed with which painstaking value-building within the MDF sector has been undermined.
Throughout this price-building process, elements of the MDF trade stressed the importance of manufacturers holding firm on prices during those inevitable periods of downward pressure. Thus, there is disappointment not only at price falls but also at lead times dropping to anything between ex stock and two weeks across the range of MDF products.
Cautious outlook
As indicated in TTJ’s last MDF report , domestic manufacturers had begun to adopt a more cautious stance on the panel material’s prospects. Nevertheless, all three had remained hopeful of introducing small price increases by the end of the first quarter. In the event, prices fell across most grades, with standard grades taking the brunt of the downturn. Described as “commodity fodder”, the price of 18mm 8×4 is understood to have fallen by between 15-18% from its recent peak, although the price paid is said to be dependent on volume purchased. “There are a lot of spot deals at the moment as the market re-adjusts itself,” TTJ was told.
Prices of the more specialised grades of MDF have not suffered to the same extent. However, annoyance was still expressed at “unnecessary” price cuts by domestic producers at the value-added end of the MDF market. “They have come in well under the market price after we have done a lot of work to build the price up,” said one importer.
Several reasons were put forward for the MDF market’s sudden dip. These included “sluggish” overall demand during the first quarter resulting from a lack of consumer confidence which had been intensified by the war in Iraq. “MDF seems to have captured the short-termist mood where people are buying only against their immediate needs,” it was suggested. “You can’t look much further forward than next week.”
MDF-consuming industries are giving cause for concern, with the UK furniture sector said to be suffering the ‘double whammy’ of lacklustre sales and increased imports. Indeed, as reported recently in TTJ, total UK imports of wooden furniture from EU sources increased in value by 28% during the third quarter of 2002 compared with the same period in 2001. Meanwhile, there were reports of the shopfitting sector “putting a lot of refurbishment projects on hold” given current economic uncertainties.
There was also a suggestion from one of the domestic manufacturers that the market has been affected by the arrival in the UK of South American-made MDF at “distinctly competitive prices”, although he was keen not to overstate its impact. A leading importer confirmed that significant volumes had been brought across the Atlantic and that prices had been enhanced by “good freight deals”.
Price disparity
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“Nobody should be panicking about what has happened to prices over the last two months. Fixed costs are not falling and so, from a manufacturer’s point of view, prices have to recover” |
By contrast, a supplier into the UK market of Continental-made, non-standard MDF suggested that his factory’s product was still “too expensive” to be able to compete with domestic board. He explained: “There is still a disparity with Continental prices – there is not a lot of difference but when you put freight costs into the equation, it tips it over the edge.” Currency exchange rates were also hampering imports into the UK, he added.
Another supplier said UK interest in his imported board had all but evaporated with the recent price drops: “Customers are too nervous to buy on a falling market,” he said.
Despite the widespread talk of falling consumer and industrial confidence, at least one leading domestic manufacturer was claiming this week that there had been “no major turn-off in demand for MDF” prior to the decline in prices, although he believed there might have been some degree of over-stocking towards the end of last year when the price trend was still largely positive.
Some industry sources were keen to play up the impact of Weyerhaeuser‘s resurgent Clonmel operation on the overall MDF market. The factory’s output was reduced significantly last summer owing to the replacement of its Washington Ironworks multi-daylight press with a new continuous line. Following a largely trouble-free start-up period, the company claimed to be operating at virtually full capacity in the final quarter of last year. It was suggested this week that the loss of Clonmel production during the second and third quarters of last year had helped to underpin further MDF price increases, whereas the return of this tonnage to the market had coincided with a period of reduced demand and increased market nervousness. Indeed, several contacts suggested that the manufacturer had dropped its prices in a bid to sustain the plant during a period of lower demand and to avoid having stock on the ground. Having observed that the modern MDF plants in the domestic market were designed to operate flat out, a senior Weyerhaeuser spokesperson argued that the introduction of the continuous press line at Clonmel was actually adding little to overall company output.
The irony of recent events in the MDF and chipboard sectors has not been lost on the panel products trade. During most of 2002, the former was reporting staunch demand and ever-rising prices while the latter was feeling the negative effects of overcapacity and downward price pressure; and yet the first quarter of 2003 has brought something of a reversal of fortunes, with MDF prices suffering a sudden, sharp decline while chipboard prices were reported this week to be showing signs of upward momentum.
That said, experts are continuing to talk up the future prospects of MDF. Among the domestic manufacturers, one reported signs of an improvement in demand since the middle of March while another pointed to a strengthening of the order book in the second quarter. Provisional statistics from the European Panel Federation have also indicated a Continent-wide growth in MDF consumption of 8-9% last year to more than 10 million m3.
Laminate flooring
Growth in laminate flooring has been particularly strong. A spokesperson for a German manufacturer suggested that his factory was “very busy” on flooring products and that lead times were normal, whereas the commodity end of the MDF product spectrum was under greater pressure. He added: “To a degree, you get an artificial situation in March because companies de-stock in the run-up to the end of the financial year. We have entered April with a reasonable order book.”
Noting that the market would not have to absorb any further capacity increases during 2003, a domestic MDF producer adopted the following positive perspective: “Nobody should be panicking about what has happened to prices over the last two months. Fixed costs are not falling and so, from a manufacturer’s point of view, prices have to recover. You have got to look at the current situation as short term.” One of his competitors agreed that the market was “already beginning to find its feet again”, although he was dismissive of the possibility of a return to price recovery before the middle of the second quarter “at the very earliest”.
It was left to an MDF importer to offer the most bullish of footnotes: “A lot of production could be coming out of the panels market over the next 12 months but there is no talk in MDF circles of withdrawing capacity. That gives me confidence that the market is not oversupplied.”
