After a prolonged period of low prices, domestic MDF manufacturers are keeping to their promise of a series of upward price corrections.
The 7-9% increase introduced on January 1, which was absorbed with varying degrees of difficulty within the trade over the first two months, will be followed in the coming weeks by a further rise of around 5-7%. ‘The market is aware that this is a trend that will continue, because our costs are continuing to increase,’ explained a domestic producer.
The exact timing of the forthcoming increase has yet to be confirmed but late April/early May seems probable. There was some evidence to suggest that inventory levels had been built towards the end of last year in anticipation of further increases, with the result that ‘a slight indigestion’ had developed in the market place, he added.
‘We are reasonably happy with how sales have performed in the first quarter although we could be busier,’ acknowledged one of the other major domestic manufacturers. ‘We have got the price increases through but we are still constantly reviewing our cost position. Across our product portfolio, we are still about 10% under-priced compared with what we should be at to meet costs. The intention is to recover this over the next year.’
Costs rise
Resin costs have continued to increase and, contrary to the general impression given, there has been ‘no respite’ on oil prices, he said. At the same time, producers were having to grapple with an increase in roundwood costs. Several contacts this week alluded to the as yet unquantifiable impact of the foot and mouth crisis, with some suggesting that it certainly placed a question mark over the ready availability of roundwood timber.
The new MDF price increase will be launched on to a UK market described as ‘steady without being totally exciting’ and as some way short of ‘getting the adrenalin flowing’. The negative effects of flooding and winter weather on the housebuilding sector have been blamed to some degree for the unspectacular start to the year, although some end users, such as kitchen manufacturers, appear to be busy.
Mouldings sluggish
Reports from the MDF mouldings sector suggest a slower pace to trade in the first quarter compared with the same period last year. Some operators are said to be offering low prices in a bid to maintain some kind of momentum in orders.
One leading figure in the sector said: ‘MDF mouldings used to be one of the sexy products but the niches are getting harder and harder to find, and more and more crowded.’ On a brighter note, however, he believed that trading conditions could improve during the second quarter.
With some pent-up demand expected to be released in the UK as soon as there is a prolonged spell of good weather, MDF manufacturers too are generally bullish about the second quarter. It was ‘just a question of time’ before there was a significant improvement in market conditions, claimed one MDF manufacturer. ‘We would expect April, May and June to be busy months.’
Another leading MDF player believed that the prospects for the next few months were ‘fairly upbeat’ and that there was some justification in hoping the traditional summer price tumble’ might be avoided this year.
For the moment, however, some distributors are said to be encountering difficulty in passing on MDF price increases to their customers and there is some concern as to whether the market will be able to absorb second quarter price increases of the scale discussed. Several contacts pointed out that many customers were continuing to resist all attempts to force through the January price rise and that deals were still available in certain quarters of the market. At the same time, there was widespread acceptance that the general trend in price movements should remain upwards so as to maintain confidence and value in the MDF sector.
A healthy measure of scorn was poured on manufacturers’ use of generally rising costs and the effects of the foot and mouth crisis on wood prices as an argument for moving their own product prices higher. As one source put it: ‘If Halley’s Comet arrived, they would be blaming that as well.’
Price rise too far
Another contact maintained that it was ‘inevitable that domestic manufacturers will go too far’ on price increases. ‘The manufacturers look at it as a cost-led business rather than as introducing price increases when market conditions allow,’ he said. Suggesting that ‘it is on a knife edge whether the next price rise will stick’, he added: ‘Manufacturers should give serious consideration to the
timing and the size of the next rise. If they push too hard they could find themselves losing the business.’
The same source indicated that offers of board had already been received from the Continent, most probably because price increases on this side of the Channel ‘have made our market more interesting’. And he added: ‘We don’t need imported board in volume terms, but we risk losing market share to imported board at a time when UK production could cover our needs.’ UK producers enjoyed the advantage of offering what was acknowledged as a higher level of service ‘but a lot of customers are not loyal to a brand and can switch very quickly’, he warned.
The prospect of a near-term increase in imports from the Continent was down-played elsewhere in the trade, with several contacts pointing out that prices paid on the Continent were still generally higher than those available in the UK, thus offering little encouragement to would-be shippers.
Price resistance
The UK’s domestic manufacturers acknowledge that there have been difficulties already this year in pushing through higher MDF prices. However, in reiterating an earlier call for a more positive approach, one leading manufacturer commented: ‘Distributors are fighting for the business that is out there and taking some of the hit themselves. But we believe they should put the increase through straight away.’
He described as ‘a general malaise within our industry’ the fact that ‘we cannot move prices along when we have to’. And he added: ‘There is a lemming instinct within the trade. Everyone runs for the volume – it’s crazy.’
Looking to the bigger picture, a senior figure within one of the domestic manufacturing operations highlighted what he described as ‘an historic moment’ for MDF. With the UK’s annual consumption believed to have exceeded 1 million m³ for the first time last year, the UK was now at or fast-approaching the point where consumption of MDF would overtake that of plywood. MDF had developed into and remained a ‘dynamic’ product that was still posting double digit market growth in the UK and Europe, he said.
The same contact reported ‘renewed optimism’ within Continental Europe where demand for MDF was quite strong across the board, and ventured to predict that demand in Europe would once again begin to exceed supply at some point during this year.
Willamette investment
Perhaps the most convincing indicator of continuing growth comes in the form of investment news. Last week, Willamette Industries announced that expenditure of US$39m had been approved for a new Dieffenbacher continuous press line at its Medite MDF plant in Clonmel, Republic of Ireland (TTJ March 31). Due to be up and running by June next year, the new plant will replace a multi-daylight Washington Ironworks press and, in combination with an existing continuous press line, will give a substantial boost to capacity.
Measuring 2.75m wide and 43m in length, the new press line is designed to provide Willamette Europe with ‘an exceptional degree of versatility, producing seven different versions of Medite MDF in a wide variety of thicknesses and dimensions’.
If the general long-term prospects for MDF are bright, then those for laminate flooring must be positively stellar. Recent figures show that the 20 members of the European Producers of Laminate Flooring manufactured 243 million m² of product last year compared with 131.9 million m²in the previous year, thereby hanging on to the coat tails of a demand that grew 58% over the same period. Some 162 million m² of the organisation’s year 2000 sales went into the European market, representing a market share of 77%. Demand growth was also reported for both the Asia-Pacific region and North American market (TTJ February 17).
Sonae imports
At individual factory level, Sonae UK reported this week that it was struggling to meet demand for the ranges of laminate flooring produced on its recently-installed 6-8 million m² per year line at Knowsley. The company’s product offering is being topped up by imports, a spokesperson confirmed.
At the Kronospan factory in Chirk, construction work on a second laminate flooring line is in train, with start-up expected in May or possibly June this year. The company is installing an additional cutting, profiling and packing operation for HDF-core T&G board as part of a £3m development that will see capacity rise from around 7 million m² per year to nearer 14 million m². Laminate flooring still constituted ‘a very, very strong’ market, according to a senior spokesperson at Kronospan. ‘At the moment we are running at full capacity – there is a lead time.’
Further news from Kronospan concerns the 150,000m³ MDF plant acquired from Junckers of Denmark late last year. After a period of uncertainty surrounding its future, the plant is being dismantled in readiness for being shipped to Mielec in south-east Poland where it will join a large particleboard and laminate flooring operation.
