Standard MDF prices have risen by 4-5% since the start of March and a further net increase of up to 6% could be introduced by the dominant three producers within the next few weeks. In recent years, attempts to push up prices this close to the often difficult summer period would have given rise to widespread astonishment but, this time round, the market appears to have re-discovered a measure of stability – albeit founded on a platform of prices that are still described as distressingly low and well below the cost of production.
This new-found confidence is based to a large extent on the extending lead times experienced by the major domestic producers. All three put delivery times at more than two weeks and up to four weeks in some instances, while one of them suggested lead times shot out from a few days to three weeks “almost overnight” due to a better-than-expected sales performance in March. In addition, Easter traditionally causes a hiccup in trading activity but this year the holiday period passed without any major disruption to the flow of business.
Current lead times tended to suggest “inherent strength in the market” and held out the promise of a relatively calm summer for MDF despite the inevitability of a seasonal lull in buying activity, according to one leading expert.
Customers appear to be at ease with the rising price trend and are generally content to see more value return to the MDF market. “It is a good time to increase prices,” said one MDF specialist. “The steep increase in the prices of other panel products such as chipboard and OSB has meant that the market is in a more understanding mood when it comes to MDF increases.” Of course, the producers have been keen to stress that, despite the recent 4-5% price hikes in standard board, they are still some way short of achieving break-even on MDF. One of the major domestic producers said: “It is costing us all money, particularly on standard board. Lots of invisible pound notes are going out on lorries.”
Within the panel sector, the MDF market has suffered a striking decline from its previous star status. As one contact commented: “It is now one of the lowest-value products we sell, which is incredible given its importance to the panel industry as a whole. Prices are far too low and the product is greatly undervalued.” And another contended: “The UK has the cheapest MDF prices in the world at the moment so it is difficult to expect overseas producers to commit too much volume to this market, especially when demand from other countries is so good for them.”
Having made regular and reasonably sizeable year-on-year gains, MDF consumption hit the buffers last year and dropped from around 1.15 million tonnes in 2002 to just over the 1 million tonnes mark. Noting that “prior to 2003, the MDF sales graph had been a salesman’s dream”, a leading UK producer attributed this decline to two main factors: particularly poor sales in the first quarter of last year owing to nervousness ahead of the Iraq war; and good summer weather in the UK convincing homeowners to go on holiday rather than carry out home improvements.
However, MDF sales expectations for 2004 appear to be somewhat brighter. The same manufacturer reported a pleasing flow of enquiries not only from regular customers but also from ‘non-core’ and distant markets, mentioning in particular the Middle East and Asia. This indicated a tightening of worldwide supply as more customers chased relatively unchanged production volumes, and had helped to create “a nice balance” in the market place, especially given the lack of new MDF capacity planned to come on stream in the near term. He went on to suggest that UK consumption of MDF should return at least to 2002 levels this year – and could possibly push on to 1.2 million tonnes or above.
South American imports
Confidence within the market has been further bolstered by import-related developments. Earlier this year, reports that International Plywood was bringing competitively-priced board into the UK from South America provoked fears that any MDF price recovery was about to be stopped dead. These imports have continued to arrive – 15,000m3 before the end of February, a further 10,000m3 at the beginning of April, and another 7,500m3 slated for the end of May. However, their impact on the UK market have been far less severe to date than had been expected.
A spokesperson for International Plywood commented: “It was never our intention to rock the boat. We are moving the material according to market conditions in the UK market. We are shadowing UK producers but just a few points back.” Most of the South American material was going to existing customers of the company, he also pointed out.
It was suggested this week that the impact of these imports had been mitigated by ship availability and by the strength of MDF demand across Europe and in other parts of the world. For whatever reason, the UK market seems to have taken the arrival of South American board in its stride. “The market was getting itself over-intoxicated on small beer, but it turned out to be just fumes from the brewery,” said one contact.
Indeed, talk has switched from potential obstacles to market development to the possibility of another standard board price rise of between 4-6% within the next few weeks. Major manufacturers recognised the need – and the desire within the market place – to introduce any increase well in time for the summer to give the market the best chance of avoiding what has become known universally as the silly season, when buying activity declines and cut-price deals emerge to shake the confidence of the market. Any increase “certainly needs to have been done or announced by the end of May,” said one manufacturer. However, given the realistic prospect of “higher levels of activity going into this summer than in previous years”, he believed there was a reasonable chance of the MDF market riding out this traditionally difficult period without too many problems.
Several contacts even suggested that the speed of MDF price increases should be accelerated. Pointing to lengthening lead times across Europe, one contact argued that a 10% price increase would be not be excessive. He felt domestic manufacturers should recognise their huge level of influence over the market and establish a higher level of confidence in longer-term prospects.
Another source said: “Volumes are moving but I feel the market should be moving. Perhaps the manufacturers don’t want to risk losing market share.” And issuing one of the few negative statements heard this week, he added: “Demand seems to be increasing and no major capacity investments are planned, but the market is still plagued by deals.” In a similarly downbeat vein, another contact suggested that the only way for the UK to avoid a silly season was for all the major domestic manufacturers to follow the lead of Continental operators and shut down for two weeks in the summer.
Specialist products
While the recent focus has been on raw board developments, other forms of MDF have been largely “ticking along” and have seen little in the way of price movement. Veneered MDF is said to have become a more highly competitive field of late and to be dogged by continuing resistance to higher prices, while melamine-faced material is experiencing “static but quite attractive prices”. A leading producer said that FR prices had been under pressure for some time and that he hoped to have the opportunity of raising them during the next round of increases.
Lightweight MDF board has also been gaining acceptance within the market, thereby creating the conditions for further expansion of domestic capacity.
