Even the brightest assessments suggest that the MDF market is no better so far in 2013 than it was last year.
UK producers reported that they have been operating at full production but, with the summer almost here, some are expressing nervousness about how the next few months will play out. "The summer is going to be very challenging," said one contact. "I hope everybody is going to hold their nerve."
Industrial and commercial activity traditionally wanes with the onset of the main summer holiday season and so this has developed into a largely no-go period for raising prices. So will the three UK MDF producers try to increase their prices prior to the holiday? According to a spokesperson for one producer, there would need to be an increase in demand before this could be contemplated.
"Logically, in terms of our costs we should be seeing a price increase before the summer holidays – perhaps by the end of June. But parts of the MDF market are flat so it probably won’t materialise until September," he said.
Another manufacturer agreed. "What’s happening with costs suggests we need a price increase – but I don’t see MDF prices moving again until after the summer." An improvement in demand for MDF was being predicted for the second half of the year and there were no signs of this upturn arriving any earlier, he added.
Although MDF business conditions in the first quarter of 2013 had been "quite encouraging", one producer said "the wheels fell off" sales in April – possibly because of the timing of the various producers’ price increases and a phase of destocking among leading distributors. He said distributors were responding to the current business climate by keeping their stocks as low as possible, with the result being bouts of destocking followed by a need to restock. For this particular producer, therefore, a difficult April had been followed by something of a recovery in orders in May. "Lead times are relatively short because the market is buying relatively short," he said.
Indeed, one of the UK’s leading distributors confirmed that his company was "hand to mouth on stock" because there were no signs of confidence from the market.
Local MDF producers raised their standard and MR prices by, typically, 4-5% in early April; however, opinions differ as to how effectively these hikes have been assimilated. One producer thought the increases became established "very quickly" – a view supported by at least one distributor who claimed that, notwithstanding "the odd whinge", the new levels had been accepted. "I’m not hearing of any deals being done," he said. However, another producer said that, while the increases were "sticking currently", there was evidence of "a little bit of weakness around the edges".
Another distributor was less positive: "It’s been difficult to establish the price increases. There have been some wobbles." Asked how he would expect the market to react if producers raised prices ahead of the summer holidays, he said: "I think they would be run out of town."
Lower sales volumes
The consensus is that, overall, MDF sales volumes in the UK have been slightly lower than the same period last year. The market is generally "very competitive" – and particularly so for lighter MDF. Demand in applications relating directly to housing has remained largely flat whereas shopfitting orders from some major retailers "are still running at a good pace", said a producer. By way of example, he pointed to Marks & Spencer where the rollout of its new format has already been extended to 337 stores, representing over 65% of its space. According to the retailer’s latest results, it will complete this project by mid- 2013/14. But even though some MDF suppliers rate the shopfitting sector as one of the more encouraging from a sales perspective, others say it remains relatively slow compared to last year. MR sales into the mouldings market are similar to, if not slightly higher than, those of last year, while demand for melamine-faced MDF is said to be "holding up".
Norbord’s first-quarter results indicate that Europe’s panel markets "remain steady". The group’s average panel price increased in the first quarter, rising 2% year over year and 5% quarter over quarter; but while OSB and chipboard markets were strong, "MDF markets remain stable", it said. The pound/euro exchange rate remained at a level "that continues to support Norbord’s primarily UK-based manufacturing", it added.
Recent exchange rate movements have done nothing to encourage mainland European MDF producers to increase their volume commitments to the UK, while the higher logistics costs associated with shipments from the Continent have also dampened such movements. Furthermore, long-haul imports of MDF into the UK have continued to be ruled out "because the numbers don’t crunch", TTJ was told by one trader. According to the Timber Trade Federation’s latest statistics, UK imports of MDF rose 4.9% to around 92,000m3 in the first two months of this year, whereas exports slumped 35.2% from 39,000m3 in January-February 2012 to just 26,000m3 in the same period this year – a fact attributed by one domestic producer to more competition from lower-cost sources.
One of the few Continental MDF producers to have maintained a presence in the UK spoke about "a good balance" between supply and demand on this side of the Channel, with "steady and consistent" orders for its products from manufacturers and merchants alike – to the extent that the company is planning a pre-summer price increase. "Demand for melamine-faced MDF is steady and demand in the kitchen and bedroom market is strong," a spokesperson said. "In veneered MDF we are increasing our prices around 5% before the summer due to cost increases. Again, demand for the product is steady and the market is well balanced."
Another contact also pointed to evidence of price increases on some veneered MDF but said the continuing presence of cheaper, lower-quality product was pushing an increasing number of discerning buyers in the direction of melamine alternatives.
