Despite the traditional dip in pre-Christmas business, the ‘big three’ domestic MDF manufacturers are united in predicting a continuation next year of the improved market conditions seen throughout most of 2002. Indeed, all of them were talking this week with almost equal certainty about the likelihood of further price increases during the early weeks of 2003.

This level of confidence is not matched throughout the MDF sector, with some industry players admitting to “nervousness” about the relatively rapid contraction of lead times and a decided swing in the supply/demand pendulum away from the latter. Acknowledging the clear indications that domestic manufacturers were preparing to introduce further price increases early in the new year, several contracts called on them to base such a decision on orders in the early part of January rather than merely on their desire to maintain the upward price momentum that has built up in the MDF market over the past year.

“At the moment, I don’t think the market can take another price increase,” said one market analyst. “The panels sector is currently in dumping mode and there is a danger of MDF being dragged down by other panel products. Lead times are still there but some of the bread and butter product lines are available ex-stock.”

This view is clearly not shared by the three ‘domestic’ manufacturers of MDF. One of the most upbeat assessments from this quarter was of a “reasonably buoyant” market that had suffered a “slight hesitation” in the run-up to the Christmas holiday period. This demand downturn had been “nothing unexpected and nothing out of the ordinary,” insisted a senior spokesperson from one of the big three producers. He noted that his own company had introduced six MDF price increases since December 2001 and that the “the market has the potential for more”. He added: “Demand and supply are in good equilibrium, and the worst period in MDF’s history has been consigned to history.”

Isolated fears

Countering some isolated fears that domestic manufacturers may be tempted to reduce prices during this pause in demand, he said: “I would be very surprised if there were any price cuts because, for the last six or seven months, we have seen pressure on order files.” His own company was planning to introduce a further increase in “late January or early February”, although such a move would depend on how lead times developed during the early part of next year.

The three domestic producers are claiming to be working on narrower lead times of around two to three weeks. One manufacturer observed that “we have all been riding on the back of quite strong trading, so any weakening in demand was bound to have some effect”, before adding, “we are still ahead of where we were this time last year”. He went on to state that his company was still enjoying a good order book for the range of MDF products – including MR and FR – and that a further price increase of around 4% was envisaged “probably for February”.

Healthy demand

According to several sources, 2002 as a whole has also brought reasonably healthy demand from a broad spectrum of veneered MDF users. And while levels of activity in the furniture industry are decidedly patchy, the kitchen and shopfitting sectors have been providing a steady flow of business.

As one might perhaps expect, other market experts are somewhat more cautious in their opinions than the manufacturers. Many pointed this week to the fact that, following some disruption to output during the summer in particular, domestic MDF manufacturers were now “tuned up” and at “full-ish production levels”. Suggesting that activity in November was weaker than expected following a relatively strong October performance, one prominent market figure observed: “It is very close now between what the three manufacturers want to sell and what the market wants to buy – closer than we have been for at least the last six months.”

Since lead times dictated the market and had fallen “rapidly” in recent weeks, he urged the manufacturers to review order intake in early January before making any final judgment on further price increases.

&#8220It is very close now between what the three manufacturers want to sell and what the market wants to buy – closer than we have been for at least the last six months”

It would be true to say that nobody within the MDF trade seems to want any reduction in prices. Despite the slightly weaker tone of the market in the run-up to Christmas, several contacts were urging the manufacturers to “hold the line” on prices. One insisted: “They have got to strengthen their resolve. If they drop their prices in a bid to get more volume, it could be really bad news for all of us.”

However, there was certainly concern that, should manufacturers run over the Christmas period, a glut of availability in early January might provide a severe test of market strength. “There is a lot of speculation about what is going to happen in the next few weeks, but the bottom line is that MDF prices are still too cheap,” TTJ was told this week.

Production blips

On the issue of supply, the production pauses earlier in the year are now but a distant memory. Indeed, Weyerhaeuser confirmed only last month that its new US$39m Medite MDF continuous press line at Clonmel in the Republic of Ireland is achieving full production. A senior spokesperson indicated that production from the factory’s two lines was expected to total around 360,000m3 in 2003 compared with 300,000m3 in 2001. There was some potential for a further increase in 2004 although any rises would be “in increments so as not to destabilise the market”.

Given the dearth of major new MDF production projects, players in the market are hopeful that the stronger supply/demand equilibrium established in 2002 can be maintained into next year. At the same time, there is some concern that further price rises will encourage a growth in imported board; it was noted this week, for example, that prices in the UK are higher than in other European countries, making this a potential target market for some Continental producers. For the moment, there is little evidence of new sources of imported board having a severely detrimental effect on the UK market, although one contact did refer to some “very competitive” imports being distributed from the quay.

Concern was also expressed about the potential effect on the MDF market of a material surplus overhanging the wider panel market. “There is a space issue,” said one contact. “A lot of importers are stuffed with product at the moment.”

The worry in the MDF mouldings sector is the same as it has been for most of the year: too much competition acting as a barrier to higher prices. The mouldings market went somewhat “flat” in November and was also less active in early December compared with the same period last year. At the same time, there are rumours that some moulding companies may be considering raising prices by up to 7% in the new year. Such a development would be very welcome, said one sectoral expert, since mouldings have not experienced the same improvement in value as has been seen with standard board.

Quiet optimism

The same contact spoke of his “quiet optimism” for 2003 given the widespread talk of an improvement in global economic conditions during the latter part of the year. But as to 2002, he said: “Our volumes went up but our margins went down. Our bottom line improved because of changes we made within our business – but it is all quite fragile.”

For MDF overall, 2002 will be remembered for returning some much-needed value to the MDF market following the most disastrous period in the material’s relatively short history. At the same time, the year is ending with distributors still struggling to pass on price increases to end users to an extent that allows them a steadily improving margin.