Summary
• Another price rise is expected in the autumn.
• Producers’ costs, for urea in particular, continue to rise.
• If necessary, producers will lower output rather than prices.
• Some distributors are said to be “undervaluing” MDF.
• European manufacturers are considering taking downtime.
• UK shipments increased by more than 40% in the first quarter.

That ghost of MDF summers past – namely, rampant “silly season” pricing – is considered highly unlikely to make an appearance over the next couple of months. Indeed, rather than worrying about how they will ride out the slack summer period, producers are already thinking ahead to the latter part of the third quarter and to the likelihood of introducing another round of MDF price increases to the UK market. “It’s an absolute raging certainty that prices will go up in September,” said one distributor.

A spokesperson for one of the three domestic MDF producers said that, from his own company’s perspective, September was likely to “contain an increase of some ilk” given the constantly rising costs of resin, wood and energy. Having noted that his company’s price hike of around 5% in early April had become “quickly established” in the market, he added that increases in 2011 to date had kept pace with inflating costs such that producer profit margins had showed a small improvement. And yet, he said, returns still left “a lot to be desired” at a time when producers “are still under pressure where costs are concerned”.

Urea costs

One of his competitor operations – which raised its standard board and melamine-faced MDF prices by as much as 10% at the start of the second quarter – was not ruling out further pricing moves even during the traditional summer season peak. Having confirmed that the company’s MR MDF prices would be pushed 5% higher from the start of July, a spokesperson added that the recent spike in urea prices – which he estimated to be in the region of 60% over the course of less than three months – had raised the possibility of introducing a surcharge on standard board.

“I wasn’t planning for an increase in July or August; I was planning for September,” he said. “But urea prices are still rising, and if this continues, something will have to happen.” He hoped that any such surcharge would be “exceptional”.

Even when putting the urea price “explosion” on one side, he added, a price increase would be required no later than September to cover energy charges which have remained stubbornly at winter rate levels even into the summer. In essence, his message to the customer base was the same as that which has been relayed by producers for some time: if necessary, output will be reduced in preference to lowering prices.

Outside of producer circles, however, there has been evidence of a more flexible approach to pricing in certain quarters. “The increase in prices since the beginning of the year was an incentive for the distributors to increase their stocks of MDF,” one contact told TTJ this week. “Now, when we are getting close to the summer season, some of them are trying to sell those stocks at prices below existing market levels.” And he went on to comment: “We believe prices of MDF will continue to rise in the second half of the year – but perhaps by not as much as they did in the first half.”

Low pricing

Another contact also complained that “one or two” distributors are “undervaluing” MDF and expressed the hope that others in the market would not be tempted to follow this example. “They need to keep their nerve,” he said. “Manufacturers are being firm on their prices.”

Indeed, the tone among manufacturers remains largely positive – despite the fact that the flow of orders for standard board has slowed somewhat in recent weeks as UK industry settles back in anticipation of the prime holiday months. In addition, demand for veneered MDF was described as “low” this week and a focus of some fiercely competitive pricing. Opinions differed hugely on the state of the laminated flooring market, while MR MDF sales were said to be “doing well”.

Unlike in the past when the approach of summer fostered mounting trepidation in panel industry circles, there was even a suggestion from one UK producer of the holiday season being welcomed as an opportunity to rebuild stocks and cut lead times which had been uncomfortably lengthy at certain stages during the first half of the year. A senior spokesperson said that demand had been “pretty brisk” throughout most of 2011, leading to a depletion of inventories. “We have not been totally relaxed about our lead times,” he said. “We have been working to lead times that have been extended too far and we have wanted to shorten them to give us more flexibility.”

Lead times

The lead times in question had been out as far as four or five weeks during the early part of the second quarter but have already been shortened to, typically, two to three weeks – largely as a result of a slower rate of incoming orders since the recent run of Bank holidays, the same spokesperson explained. Maintenance shutdowns planned for the summer would also be trimmed to help with the stock rebuilding process, he added.

These intentions seem to contrast with the situation on mainland Europe where many MDF manufacturers are said to be considering or already implementing significant periods of downtime over the summer in response to what was described this week as “generally flat” demand.

The market position of sterling-based MDF producers has continued to improve with the decline in the currency’s value. In effect, the relative strength of the euro has neutralised the UK’s standard board imports from the Continent where prices are typically some 5-8% higher. “There is nothing on the radar screen in terms of bulk items – just some specials,” said an importer. “I don’t see the situation changing without a major shift in currency or freight rates.”

At the same time, export opportunities have continued to open up both on mainland Europe and even in places further afield. At a time when UK demand is generally “not buoyant”, one producer said the export market had provided a sufficient pressure release valve to enable the company to continue selling all that it makes. Overseas customers were prepared to pay “more interesting” prices than in previous years, he added.

The same contact was also at pains to point out that the export outlet would not be allowed to compromise the needs of the company’s established UK clientele. “Exports will take the surplus – they will not take over,” he said. “There will be no service problems for UK customers.” He added that he would “like the UK to be a bit more busy” despite “comfortable” lead times; some items were available from stock whereas lead times on others were “up to three weeks”, he said.

UK exports

The upturn in the UK’s MDF exports is evident in latest statistics from The Timber Trade Federation (TTF). These reveal an increase of more than 40% in first-quarter overseas shipments from around 32,000m³ in 2010 to 45,000m³ in the corresponding period of 2011; for the whole of last year, the UK’s overseas shipments of MDF amounted to 136,000m³. Interestingly, the stats also suggest that MDF imports gained ground in the UK market, rising from 147,000m³ in January-March 2010 to 166,000m³ in the same period of this year. Imports for the whole of 2010 fell just short of 600,000m³, noted the TTF.

As we reach the mid-point of 2011, producer contacts questioned by TTJ this week said that MDF volumes in the first half of the year were broadly within budget predictions. Despite expressions of regret at the financial problems encountered by iconic retailers such as, most recently, Habitat, few in either producer or non-producer circles are anticipating any major disturbance of the MDF status quo in the near term.