A change of approach among domestic manufacturers has helped to create a more favourable set of market conditions for MDF. It was with an air approaching wonderment that several contacts hailed the lengthening – and for some MDF products, the return – of lead times.
According to a senior UK producer figure, the ‘awful’ prices recorded during the course of this year had convinced his company that it was no longer viable to chase volume for its own sake. ‘We have reached a stage where we are prepared to curtail production,’ he said. This strategy entailed a high level of cost but was necessary in order to bring the market into greater balance, he said.
Downtime had been taken, was being taken and would be taken again if necessary to safeguard product value, he said.
Noting that his own company was not alone in this and other measures to restrict the flow of product to the market, he pointed out that US manufacturers had a history of taking downtime when their inventories were brimming, and that similar measures had been adopted earlier this year in relation to OSB as a response to prices plumbing unsustainable depths.
In effect, domestic producers are striving to return more value to a market that has suffered what were this week described as ‘brutally low’ prices for most of this year. One UK manufacturer said his company had raised MDF prices by an average of 10% for deliveries from December 1, while another talked in terms of an average 5% improvement in the value of his firm’s products, depending on the customer and the product. This move in prices had met with ‘no resistance at all’ from consumers, he added.
According to one of these producers, MDF prices were likely to end the year 16% lower than they were in January, given that prices at one stage this summer had been 25-26% below the levels of the start of the year.
New year increases
The same producers went on to suggest that further MDF price increases could be seen early in the new year. One said: ‘The MDF industry appears to have drawn a line under falling prices. There are now clear signs that the direction of prices as we head into 2002 will be towards recovery. If demand continues the same way as it has been in November and December, I would anticipate another move in this direction in late January or early February.’ The other agreed: ‘Demand is healthy and I expect it to remain so for 2002. In the first quarter of next year, I expect we will see some further consolidation of prices.’
Producers acknowledged that there had been some justification for the poor prices seen towards the end of this summer. There was a sudden drop in business confidence while MDF manufacturers themselves were sitting on high inventories, such that distributors were able to snap up anything they needed at short notice and therefore did not have to carry high stocks themselves.
Reports from the European Panel Federation suggested a poor first half to the year for MDF producers followed by reduced demand in the wake of September 11 at a time when sales volumes had been showing signs of an improvement.
There was ‘only a fine line between too much supply and not enough’ and the situation had changed markedly over recent weeks, TTJ was assured this week. First, MDF manufacturers have introduced production downtime with the result that the flow of supply to the market has been restricted and stock levels have been reduced.
‘We are now quoting lead times of three weeks on certain specifications,’ said one of the leading domestic producers. ‘We even ran out of 8×4 18mm recently – and that hasn’t happened for a long time.’
UK demand was generally reported to have been reasonable to good since the late summer. The events of September 11 had dealt no particular harm to orders and, indeed, had possibly provided an impetus to complete work ‘in the pipeline’ for fear uncertainty created by the terrorist attacks would lead to projects being cancelled.
Added value
Another factor in this apparent change in market conditions has been domestic producer moves in the direction of added-value MDF products, which has taken some of the pressure off the commodity area of the business. And at least one of the UK’s manufacturing trio was able to report not only reasonable domestic demand but also an increase in export orders. He mentioned in particular an improvement in demand from the Middle East and even the Far East. ‘If a country is in the US dollar zone, then we are as competitive as any,’ he added.
The wider picture provided further cause for optimism, it was suggested in the manufacturing sector. Overall demand for MDF was likely to show an increase in 2001 – albeit a less dramatic rise compared with previous years and albeit more pronounced in the speciality MDF sector than in commodity products. A prolonged period of new plant installations was virtually at an end and supply and demand were likely to be coming more into balance.
In the UK, the outlook was even more encouraging given that the erosion of the country’s heavy industry base over recent years had left it less vulnerable to the impact of recession. The chancellor has predicted reasonable growth in 2002 with latest economic data underlining how retail spending in the UK is outperforming manufacturing. Figures from the British Retail Consortium show that retail sales grew by 6% and 5.8% respectively in October and November, whereas the Chartered Institute of Purchasing Supply noted a fall in its overall index of manufacturing from 46.5 to 45.6 in October – the lowest level for almost three years and the ninth successive month that the index has spent below what is deemed to be the critical 50 points threshold.
There were grounds for hoping that demand would remain at reasonable levels in the UK. Money was still cheap, analysts were more bullish than they had been several months ago, and the market could be expected to benefit from the decision taken by many Brits to spend money at home rather than travel.
One UK producer suggested that the trade and its customers would welcome moves to reverse the prolonged demise in MDF prices. However, their hopes and expectations were greeted with scepticism in certain quarters, with one operator encapsulating the views of many with the comment: ‘Seeing is believing. It will be interesting to see whether the price increases stick.’
Volume orders
There is still widespread belief that good deals are available for volume orders and that the market for ‘commodity’ MDF products is considerably weaker than that for specialist grades. And there is concern that domestic MDF producers might damage the market if they were to introduce another price increase early in the new year.
One leading market player explained: ‘It has helped that lead times have gone out because, with MDF, lead times determine the price levels. But I am convinced that the manufacturers should see through December, January and February before putting prices up again – almost irrespective of how demand goes.’ Price movements created uncertainty and had to be given time to be assimilated, he said.
The same source warned: ‘The market cannot be that sure of its future that another price increase can be introduced before three months are up.’
In addition, several contacts expressed doubt about the longer-term strength of the UK economy and the likely impact on MDF demand. One source pointed to a ‘general malaise’ in business circles and to the fact that lead times in the furniture industry, for example, were shorter than normal at what is usually a bumper time.
Catching up
An MDF mouldings manufacturer also cast doubt over the durability of the price increase on the grounds of a general lack of business confidence and the availability of excess MDF capacity. The fact that activity had not slowed for Christmas by early December could be attributed to a ‘catching-up’ process from the unusually low order levels of September and October. November had definitely brought ‘a lot of delayed September and October business’, he said.
He labelled as ‘irresponsible’ the capacity increases introduced by some mouldings manufacturers at a time when ‘you can’t get a sensible price for the product’.
It is considered highly unlikely that this latest increase in MDF prices will have any impact on the levels of imported MDF coming into the UK.
Several contacts stressed that significantly higher prices would be required in this market before imported board began to flow into the country in any great volume. According to one agent, a further 15-20% price hike would be needed before his contacts would consider shipping into the UK market.
That said, there was also widespread relief that more value was being injected into the MDF market after a period in which there was evidence of distributors turning away MDF orders ‘because they weren’t making any money on it’. The higher prices for commodity products would also take some of the pressure off suppliers of specialist MDF since ‘if ordinary MDF goes down in price, some customers expect non-standard MDF prices to go down too’.
Another suggested that the price increases would be welcomed throughout the MDF supply chain. He hoped the more upbeat tone would last until the Christmas break so that the trade could return ‘on a high’ in the new year.
