Summary
¦ Prices are firm and unlikely to rise until the autumn.
¦ Any summer deals are said to be “isolated”.
¦ Production cuts earlier in the year have helped the market balance.
¦ Export opportunities have increased for UK producers.
UK demand for MDF is nothing out of the ordinary for the time of year – but most producers and distributors are adopting a generally positive attitude to current market conditions. Given that the country is still grappling with an economic downturn and the summer has often proved to be a difficult period for the MDF trade, the leading players in the supply chain are content to report a “steady-as-she-goes” market characterised by widespread price firmness.
For many years, the MDF trade became synonymous with sometimes extravagant summer deals which earned this period of the year the nickname of the “silly season”. To date in 2010, however, the major domestic producers largely appear to have held firm on price. Furthermore, several normally sceptical market experts are agreed that prices seem set to remain stable throughout the holiday season.
Deals reportedly offered by one or two distributors have been described as “isolated” in nature and restricted to “certain areas of the country”. And there was also a report from one trade contact that one producer has been prepared to accept a lower price specifically for 18mm raw board.
Indeed, it would be wrong to suggest that all elements of the MDF industry believe a comfortable balance exists between production, stocks and demand. For example, one contact pointed out that the summer is by no means over and that pressure may well build on domestic producers to make a choice between reducing production and dropping prices. As far as he was concerned, “they will have to do one or the other”.
Despite the fact that the summer silly season sales have largely failed to materialise, there is still a residue of the MDF trade that believes Continental-style summer closures should be considered by UK producers, particularly when the market lacks vibrancy. On average, MDF lines on mainland Europe are stopped for three to four weeks around now.
Price rises assimilated
In the UK, the most recent round of MDF price increases implemented in May and June appear to have been assimilated with reasonable ease, although some distributors said up to eight weeks had been required to complete this process. According to one domestic producer, which raised its raw and MR MDF prices by around 5%, the increase was established relatively quickly because the market “was quite busy at that time”, although the pace of business had slowed slightly by early June “due to better availability”.
He confirmed that his company’s lead times lie anywhere between two and four days depending on the product, adding that “we are not increasing our inventory – we are selling what we are making”. But despite what he described as reasonably healthy order files for MDF, it appears unlikely that the company will break with tradition by attempting to push through another price increase during the summer. “It is more a question of holding firm and hoping that September will provide different prospects,” he said.
A fellow producer predicted that his company would look for an MDF price increase “in the autumn” – and that it would be of a similar scale to the 5% hike implemented ahead of the summer. Another supplier into the UK market confirmed that his company had imposed an average price increase of 6% on its raw and MR MDF during the second quarter, before adding: “We aren’t planning to do anything [with prices] until September or early October depending on market conditions.”
Other leading MDF experts also anticipated no price moves before September at the earliest. A spokesperson for one of the UK’s distributors said producers were likely to look for an increase “in September, or October at the latest”. A counterpart at another top distributor reported “no vibes of an increase before then” – a state of affairs he welcomed given that attempts to raise prices in previous summers had sometimes led to “a market crash”.
Consistent demand
The almost universally-shared belief that steady upward price progress can be resumed after the summer holiday period is being fuelled in part by more consistent demand – notably from the joinery and furniture sectors – although views on the strength of demand from shopfitters ranged from “continuing and surprising improvement” to “a little below par”. Meanwhile, one contact echoed the sentiments of several others in highlighting a slowdown in demand from the DIY sheds – a fact he attributed in part to the distractions of the hot weather and the football World Cup.
However, when taking into account sales to all sectors, the combination of these factors and the emergency Budget seems only to have caused a pause in buying, rather than an overall reduction in sales volume. Raw board orders have been steady while MR sales experienced a two-month spike before dropping back to more familiar levels, he added.
According to one of the major UK distributors, the company’s raw MDF sales volumes are on course in 2010 to be the best since 2007 and to outstrip the 2009 figure by double-digit percentage points. Several veneered MDF specialists also reported an improvement in sales, with one pointing to an excellent July which had created a “sold out” position “for the first time in a while”. Prices are holding and orders already taken for September are “as healthy” as in pre-recession times – particularly encouraging, he added, given that the majority of customers are trying to keep stocks low and to avoid buying too far forward.
Although most contacts expressed pleasant surprise at current levels of business, their mood was not replicated everywhere: for example, one supplier said his company is encountering “subdued” demand in the UK for all forms of MDF. But even he agreed: “We will have to increase prices for the last quarter. It’s all about the wood – wood supply is not getting any easier or cheaper.”
Supply and demand balance
The apparent supply/demand balance has been maintained by production cutbacks earlier this year and summer maintenance downtime – much of which was planned long before the onset of the holiday season. In total, several weeks of MDF production time will be taken out for maintenance purposes. However, one producer said that, having already taken a scheduled seven-day main-tenance shutdown, order levels now require him to work at full production for the rest of the summer.
“I am positively surprised,” he said. “It isn’t that quiet for the middle of the summer.”
Another release valve for MDF volumes produced in the UK is provided by shipments overseas at what one domestic producer described as “attractive rates”. In stark contrast to market tradition, “there is more opportunity to export than there is to import – and at similar prices to those in the UK plus freight,” said one leading trader. At present, his company is exporting MDF to unspecified destinations outside the euro-zone – a development he attributed to helpful moves in exchange rates and the prolonged loss of Chilean supply following the February earthquake. Efforts are ongoing to rebuild production and logistics infrastructure, however, and latest indications are that Chilean availability is on course to improve significantly later in the third quarter.
Associated transport costs and reduced production on the Continent have also restricted the flow of MDF to the UK. And, while some say the gap has narrowed, MDF prices prevailing elsewhere in Europe are still 5-6% higher than in the UK.
