Summary
¦ October is showing signs of being a busy month.
¦ Price hikes of around 5% on raw board and MR are scheduled this month.
¦ Urea prices have risen 50% over the last month.
¦ Currency fluctuations have boosted UK exports.
¦ MDF imports are now almost exclusively restricted to speciality items.

An aura of relative calm is pervading the post-summer MDF market in the UK. Demand is steady; lead times are generally within acceptable bounds for domestic producers; and buyers are said to be reacting with almost universal equanimity to the prospect of imminent price increases.

In effect, the summer months delivered encouraging levels of demand for home MDF producers, enabling them in most instances to keep summer maintenance shutdowns to their planned lengths. A spokesperson for one of the producers stated: “Demand was good – above what I had expected. We are fully producing and our stocks are reducing but are still sufficient.”

And another producer confirmed that, following a decent July but a “not particularly good” August because of prolonged summer shutdowns by some industrial MDF users, business levels “recovered remarkably well” in September while October is already showing marked signs of being “a busy month”.

The raw and MR forms of MDF are now said to be attracting “good, steady, reliable demand”, with sales of components into the furniture industry reportedly running better than earlier in the year. Importantly, laminate flooring sales have shown some signs of improvement, with the result that production has been shifted back in this direction and some pressure has duly been removed from the standard board sector. Meanwhile, sales of veneered MDF are described as “OK – but not brilliant”.

Following the round of increases in May and June, there were no further moves in official prices over the remainder of the summer – a move widely supported within the MDF sector. Summertime offers appear to have been limited in number: one contact said that the “few little deals done” were insufficient to “rock the boat” while another contended that discounts were – and still are – available to those prepared to buy in large volumes.

Price increases

Overall, producers have been sufficiently buoyed by market developments over recent months to announce official price hikes of typically 5% on raw board and MR; these were scheduled to take effect from early October. “We have a good order file and I think these increases will become established,” said one producer. And another added: “The market is still strong enough.”

Broad support for this upward price move has been received from the distributor chain.

“I think they [the domestic producers] were wise to wait until October rather than going in September,” said one distributor. His company’s raw MDF sales volumes have climbed around 7% during the year to date. “The margin hasn’t improved but regular price increases have made it a higher-value product, so that means more pound notes,” he added.

Another contact reported sales volumes similar to last year but “a slightly better margin because the price increases have stuck better”.

A domestic MDF producer told TTJ this week that the business was on course to record a “double-digit” percentage increase in volume terms compared to last year. However, he was more circumspect about prices, arguing that “we are not quite there yet” and that “these will still have to move”. A fellow producer said his MDF sales volumes were likely to be “slightly” higher at best this year when compared to 2009, not least because of the disruption caused by the cold snap at the start of 2010.

These latter comments reflect the long-term and ongoing battle within producer circles to build margins in the face of ever-rising costs. The price hikes implemented in 2010 have allowed MDF producers to do little more than keep pace with these costs – “and that’s why we think there is scope for further increases”, said one.

Outlay on timber raw materials has continued to escalate and MDF producers are being forced to adopt a “very aggressive” stance to secure their requirements given that availability remains tight. But in terms of all cost factors, the biggest mover of recent weeks appears to have been urea which, according to one producer, has recorded a 50% increase over the course of the last month because of, among other reasons, stronger demand from the fertiliser industry. “We have not seen such increases since the autumn of 2008,” he said. The same contact also pointed to “quite high gas prices over the summer months compared to previous years”.

UK market in balance

Several factors have conspired to create a reasonably robust balance within the UK market during most of 2010: producers have been prepared where necessary to trim production in line with current demand; the generally lower prices available in the UK have reduced the pressure of volumes flowing into the country from overseas producers; and currency fluctuations have helped to boost export business and create a release valve for UK production which may not have found a ready buyer in the home market.

At present, UK domestic prices of standard MDF are said to be trailing those prevailing on the Continent by typically 7-8%, thereby encouraging decent volumes to leave these shores. The Mediterranean region is acknowledged as relatively fertile territory for UK exports at present. “I can get good prices for exports – so the strength is not just in the UK,” TTJ was told. Feedback from the Continent itself suggests demand for MDF is more subdued in certain parts than in the UK, although prices are proving to be reasonably resilient throughout.

The earthquake in Chile earlier this year pushed some of the country’s regular international buyers in the direction of UK suppliers in their search for alternatives. Production has now regained momentum in the South American country although its export opportunities to the UK have been undermined by a price differential to the domestic market of more than 10%.

As for MDF flows into the UK, these are now restricted almost exclusively to speciality items and have diminished “almost to the point where we don’t take them into account any more”, a distributor said.

Positive sentiment

As mentioned earlier, the MDF market has emerged from a traditionally tricky summer period with generally positive sentiment still intact. “We have certainly seen a bit more stability this year,” said one contact. “Customers are more relaxed because they are not seeing their stock depreciate in value, and it is easier for sellers to give a longer-term commitment to buyers on price. As a result, this means buyers are less likely to shop about.” There now appears to be an ingrained realisation among most MDF purchasers that “you need to pay the price if you want material”, especially as there has been evidence in recent months of availability on some items running reasonably tight from time to time.

A general desire to maintain this perceived market balance is widely regarded as one of the main reasons why domestic producers are not expected to push for further MDF price increases before the new year. With the October increases likely to take a few weeks to be assimilated into the market and with December traditionally a quiet month for sales, any official price move before January could prove premature, several distributors said this week.

If the market were given fair warning of a price hike in January, they said, buyers could be encouraged to place more business in December, thereby pepping up producer revenues at a time when orders are usually hard to win. Furthermore, the first quarter of a year is generally a strong period for sales “so that’s the best time to do it”, it was contended.

These arguments are not lost on the producers themselves. “I have a feeling there could be another price increase in January,” said one.

Some industry contacts see this as a further example of a “level-headedness” and “more disciplined attitude all round” in the MDF sector which, they say, has been partly engendered by recession. And many are hopeful this “sensible” approach will persist even when the impact of UK spending cuts begins to bite in earnest.