In line with domestic manufacturers’ avowed intention, the phrase ‘cheap deals’ appears to have been written out of the MDF vocabulary this summer. Indeed, the lack of a silly season has served to boost confidence within the sector and to raise the prospect of further price increases before the end of the year.
This high degree of confidence has been underlined by announcements from one of the major three domestic manufacturers that it would be raising all of its MDF prices by 5-7% from the start of this month and that it was anticipating no loss of business as a result. All three producers are now said to be at broadly similar price levels and what’s more, all are talking in terms of further increases sooner rather than later. The talk on the Continent is also of further price rises and of generally full order books.
Price rises imminent
A senior spokesman for one of the three domestic producers said price rises of 4-6% were imminent, given that sales during the summer months had been better than expected. He said MDF manufacturers have not had to drop their prices in order to move material and the pressure created by the traditional slow-down in domestic sales during the summer months had been eased to some extent this year by tactical exporting. There was also a determination to compete more forcibly in export markets in the future.
The same source anticipated further rounds of MDF price increases before the end of the year, given that the sector was “still unprofitable” and prices still trailing, with some 30% below levels of 11 years ago. He pointed to price increases in other product areas and added: “Panel producers throughout Europe appear to be having a bit of a renaissance due to a lack of investment and a lack of new capacity.”
Many experts have observed in the past that lead times represent the most reliable barometer of the strength of the MDF market. One of the leading domestic producers confirmed this week that it was operating on a two-week schedule – considerably longer than has been experienced at this point in previous years. Its spokesman said: “Demand has stayed strong during the summer and I don’t see any reason for the situation to change. It has been really encouraging for us and very positive for MDF as a whole.”
A senior spokesperson for the third major domestic producer declared that the MDF sector had “survived the summer without any silly season madness where prices are concerned”. He suggested that some buyers had doubted the resolve of the manufacturing sector to resist cheap deals during the holiday season and so had changed buying patterns accordingly.
He added: “But once it became clear that we would achieve what we said, stockists gained the confidence to buy material.”
Above ideal levels
His company responded to a lull in sales in June and July by adding to its inventory. Stocks were above ideal levels as a result although he said “this puts us in pole position in terms of supply”. Early August ushered in a return to higher sales levels and opened up the possibility of a price increase as early as September.
He stressed that any such upward move would depend on how the trade emerged from the holiday period. However, he insisted that there was not the slightest prospect of a price reduction. “There won’t be any downward move. I am reasonably confident that we will see a price increase in September and I don’t think it will be the last this year.” The same spokesperson did not rule out the possibility of one or even two more price increases in the final quarter of 2004. He said: “We are still selling at low levels compared to where we have been in the past.”
Producers’ determination
Other leading players within the domestic MDF sector welcomed producers’ determination to hold the line on prices and that cheap deals had not affected the market this summer. A spokesperson for one said: “The mill realises that if they were to drop their prices, it would take them forever to get them back up again.” At the same time there was a general acceptance that manufacturers would be looking to introduce further price increases almost as soon as the summer holiday period had come to an end. Another said: “It is unheard of for manufacturers to be talking about price increases and lead times even before the end of the summer holidays, but everyone is optimistic prices won’t be going any lower.”
Noting that demand had been steady rather than spectacular, several companies were doubtful whether the market could absorb three price increases before the end of the year. One contact summarised the views of many: “I don’t mind price increases so long as they are sustainable and everyone passes them on.”
With almost every region of the world experiencing strong demand for MDF, lack of pressure from imported board has helped to improve market conditions for domestic producers. Earlier this year elements of the MDF sector were expressing deep concern at the decision by International Plywood to import competitively priced board from South America.
In the event, this material has not precipitated the price-cutting spree many had anticipated and a spokesperson for International Plywood confirmed this week that around 50,000m3 has been brought into the country, but no more shipments were planned. “We are now looking at other sources,” he said.
Other factors have also been helping to underpin producer and general market confidence. Unlike in 2003, the trade has not had to contend with the uncertainty created by the lead up to war in Iraq or by the consistently warm summer that adversely affected DIY activity. This year has brought increased levels of activity in some key MDF-consuming areas. Latest statistics in the housebuilding sector reveal that NHBC applications to start were 36% higher in July than in the same month last year, while completions were ahead by 8%. Completions in England during the second quarter were 10% up on a year ago.
A leading MDF expert described these figures as positive signs for the trade and reiterated his prediction that UK consumption, having totalled a shade more than 1 million m3, would recover to 1.15 million or even to 1.2 million m3 in the current year. European Panel Federation (EPF) statistics suggest such a performance would effectively set a new UK consumption record, outstripping the previous best of 1.1 million m3 set in 2002.
Second-largest consumer
According to the EPF, the UK was one of only three European countries to report a drop in MDF consumption last year – the other two being Austria and Portugal. The UK remained Europe’s second-largest consumer of MDF, although its 9.5% share was dwarfed by the 26% consumed by Germany. Europe-wide consumption increased by 7.3% last year to a little over 10.5 million m3, with a further increase of 5.4% to 11.08 million m3 anticipated for 2004 – more than double the annual consumption total of 5.35 million m3 recorded as recently as 1997. For this year, EPF expected German demand to stagnate at around 2.7 million m3 while Romania, Turkey, Finland and Poland were identified as a major focus of consumption growth.
MDF production capacity in Europe increased by 1.2 million m3 in 2002, but was followed by only modest expansions last year.
