MDF is enjoying its most stable summer period for some time on the back of a reasonable level of demand, a number of supply-tightening breaks in production and a seeming unwillingness within the market to engage in some of the traditional “price fighting” that has occurred in previous summers. Indeed, domestic manufacturers have attracted widespread praise for being “very firm on prices” and for maintaining “consistency in their pricing policies” at this key time of year.
The MDF market appears to have achieved a reasonable balance despite poor sales in June – a phenomenon attributed to the fact that the month contained only 18 trading days compared with the average of 21.5 days. In general, sales improved markedly during July and August, with the market said to have “soaked up what the manufacturers have wanted to sell”.
The industry is now hoping that autumn demand will be sufficient to mop up the additional volumes that will come on to the market once the summer round of planned maintenance shutdowns and holiday breaks comes to an end. There has already been sufficient late summer buying interest to prompt cautious optimism about late third quarter and fourth quarter order books.
Helping to build this optimism have been the UK government’s plans for more housing. On the other hand, a degree of uncertainty has been introduced into the market by worries over the impact on businesses of the stock market decline and over how long the property boom might last.
For the moment, a senior spokesperson from one of the ‘big three’ domestic producers believes that stocks of MDF “have never been as low as they are now for this time of year”. Delivery times have gone out to around a month or more and, as a result, his company’s prices would soon be going up by an as yet unspecified amount.
Another of the major home producers confirmed recently that his company would be looking to increase its MDF prices by between 4-6% “across the board” for September onwards. And the remaining member of this trio of manufacturers has also announced increases of 3-3.5% across its product range starting from next month.
Price momentum is such that one of these spokespeople did not rule out the possibil-ity of introducing a further price increase towards the start of the fourth quarter, although he said that no firm decision had been taken. Volumes had held up well and the market appeared to be enjoying a reasonable balance, he added.
There has still been scope for “a little bit of negotiation” on MDF during the summer months, but deals have been generally more visible than in recent years, it was suggested this week.
Distributors’ complaints
By and large, UK distributors are complaining that it has been possible to raise their own selling prices in line with the producer increases. One contact pointed to the general firmness of the MDF market but said: “Distributors are struggling to keep pace with the increases imposed by the manufacturers. As an industry, we have always been afraid to increase our prices.”
Another high-profile industry figure agreed: “It has been very tough on distributors to get their prices up – we are close to one price increase behind. As soon as one increase is in place, the manufacturers say they are looking for another one.”
The same contact also suggested that keenly priced MDF from Iberia had increased the level of competition and had kept something of a lid on prices over the summer. “It has been having a ripple effect in the market,” he said, “because the volumes involved are quite big.”
Optimism in the manufacturing sector is underpinned to some extent by the low level of stocks at a time of year when many key consumers are entering one of their busiest periods. The furniture industry, for example, is a traditionally strong buyer in the late third and early fourth quarters, although demand from this sector has recently been patchy. Some manufacturers appear to have healthy order books while others complain of poor sales prospects.
Latest figures from the European Panel Federation show that MDF production rose by 7% in 2001 to achieve a new record of 9.6 million m3 . With little in the way of new capacity either installed or in the pipeline, one of the domestic producers suggested that MDF would become increasingly short in Europe and that this would naturally lead to further prices increases.
However, the same source was at pains to point out that the market was still seeing “historically low” price levels. He elaborated: “We are a lot happier going into the autumn than we have been for a number of years – we have kept running over the summer and we have achieved our budgets. But I wouldn’t want to give the impression that the market situation is brilliant. Prices are still £50-60 per m3 lower than they were in the mid 1990s.” Stressing that customers should brace themselves for further price increases, he added that any increases in raw material costs would have to be tacked on to the selling price with immediate effect.
Another of the major domestic MDF producers agreed: “We are still selling at prices lower than those in January 2001 – which says a lot about where we have come from and about where we have still got to go.”
With demand said to be reasonable without being spectacular, the MDF market has achieved its seemingly comfortable balance to a large extent on the back of events on the supply side, where there have been not only planned maintenance shutdowns but also the introduction of a new press at Weyerhaeuser Europe’s operation at Clonmel in the Republic of Ireland.
Change in schedule
According to the original schedule announced by the company, the plant’s multi-daylight Washington Ironworks press was due to be switched off at the end of June to allow the necessary work to take place in readiness for commissioning on July 15. In the event, the break in production went out to three-and-a-half weeks.
A senior spokesperson insisted this week that the company was “reasonably relaxed with the start-up” and that the prolonged break was not expected to have a major impact. Production volumes were broadly in line with expectations and delivery times were largely “where we would expect them to be” although, depending on product and specification, “the market in some cases is having to wait slightly longer for its product”, he went on to say.
As with standard board, the MDF mouldings sector has also witnessed reasonable volumes of business during the summer. However, according to one prominent player, there has been “a lot of nervousness about prices” because mouldings companies “have not been able to recover all of the board price increases” from their customers. “Some of the customers don’t believe there has been a price increase and others are acting as if there hasn’t been a price increase.”
The mouldings sector continues to suffer from some overcapacity and, according to several sources, there is growing evidence of some smaller players taking a slight backwards step from the business.
Non-standard grades
It was also suggested this week that prices of moisture resistant (MR) MDF have failed to mirror the increases seen in standard board, with the result that the product is said in certain quarters to have become “seriously under-valued”. While applauding the fact that domestic producers had “stuck to their guns” on standard board prices during the summer period, he said that the MR grade required “an immediate 5% increase as a minimum” and that a 10-12% hike would be required to reflect the product’s true value. Fire resistant (FR) MDF was also “an under-valued product” but “to a lesser extent” than MR, he added.
Contending that “standard board softens up the market for increases in other grades”, the same contact believed that, should demand remain steady, price increases of up to 7% on standard board could be expected before the end of the year. He added that, hopefully, this rise would filter down quickly to other, non-standard grades of MDF.
On this issue, one of the domestic manufacturers confirmed that MR was “likely to be tagged on” to any standard board price increase from the early fourth quarter. There might be similar opportunities further down the line to do the same for FR MDF, he added.
From the company news perspective, it was confirmed this week that Kunzgroup subsidiary KFB is continuing to concentrate on HDF rather than MDF production at its 300,000m3 per year plant at Baruth, south of Berlin, where production began last year. However, the small volumes of standard- and furniture-grade MDF were being snapped up quickly, according to a com-pany source. Plans for the plant included a move into the production of MR and FR grades, although this might take more than a year to come to fruition, he added.
News from Germany
Two further snippets of news have come from Germany this week. Firstly, at least one MDF mill in the country was understood to be concerned about the flood waters affecting part of central Europe and had been building flood defences. A worsening of the situation could ultimately impact on production, it was suggested.
Secondly, another contact said shipments of German MDF to the UK were being hit by high container freight rates: “I can ship to China cheaper than to London”.
