Above-average demand has now conspired with existing tight supply to turn up the heat in the MDF market. With the Easter break failing to stall the flow of orders, MDF prices are expected to continue on their resolutely upward course for the foreseeable future.

Having raised its standard board and MR prices by around 7% in mid-March, one of the leading three domestic producers of MDF confirmed that another increase was likely to be implemented in early May in response to “immense” pressure on order files; according to current plans, this hike would cover not only standard board and MR but also other MDF products.

A similar scenario was described by another UK manufacturer: across the product range, prices had been increased by between 7.5-10% in mid-March and a further 5-6% hike was envisaged for early May. And the remaining member of the three domestic producers confirmed that it had introduced two price increases averaging 8% apiece since the start of this year.

Positive response

Moves to raise the MR price have attracted a particularly positive response from distributors, many of whom clearly believe that the product has been under-valued for some considerable time and needs to “catch up”.

One source reckoned that, at present, domestic MR prices were between 12-15% lower than those available in parts of Continental Europe. One producer commented: “Our MR prices have been going up quarterly this year and that trend will continue in the second half.”

At the same time, demand for flooring, mouldings and decorative MDF products appears firm. Indeed, moves to satisfy demand from flooring customers have deflected yet more production away from raw board.

Despite a shared conviction to pursue further price progression, there is a notable disparity between the lead times quoted by domestic producers. One confirmed to TTJ this week that, having stood at 14 days as recently as mid-February, lead times have since drifted out to six or seven weeks across the firm’s range of MDF products; another put lead times at “four weeks and strengthening”.

By contrast, the third home producer is working on lead times of nearer one week, although a senior spokesperson acknow-ledged that these times might move out quite quickly in the post-Easter period.

TTJ was told this week: “There are significant price increases still on the horizon. If lead times stay like this, the speed of those increases will be accelerated.” And while MDF manufacturers will tend to fight shy of using the word “allocation”, a spokesperson for one producer acknowledged this week that rationing of supply could become “inevitable” in order to “protect our regular customers with the volumes they have come to expect”. And he added: “We are getting enquiries every day from around the globe but we just don’t have the capacity for them.”

Questioning supply

A UK-based supplier of veneered MDF confirmed that his customers were generally beginning sales conversations with the question: “Have you got enough MDF to supply us?” Having noted that the price of oak veneer was expected to rise 20% this year while American black walnut veneer had already jumped 15-20% since the start of January, the same contact offered the following pithy assessment of the market in general: “If it’s made of wood and glue, and goes on the back of a lorry, then the price is going up.”

Not so many months ago, experts had agreed that supply issues were the driving force behind a rising MDF market. However, demand is now said to be above the norm for the time of year, with some – but not all – experts claiming that buyers are increasing their order volumes for fear of missing out on the limited supply available.

Peculiar demand

Demand was “peculiar”, noted one source, because there were no signs that any of the major MDF-consuming sectors were “roaringly busy”. Demand from the joinery and shopfitting sectors has been reasonable whereas furniture manufacturers are continuing to suffer the effects of strong competition from imports.

A leading distributor said: “Furniture manufacturers can’t pass on the MDF increases. We must be mindful of not holing the UK furniture industry below the waterline. If we keep pushing for more increases, we could force them out of business.”

Some warned that the impact of this “over-buying and over-stocking” process could be felt during the summer months when there is traditionally a dip in business activity. In this context, a senior domestic producer agreed that “artificial” increases in demand certainly represented a danger when lead times became extended. Customers ordered more but, in the absence of any meaningful upturn in demand for their own products, their stocks began to mount up and their buying levels suddenly dropped a few months later, he explained.

However, it was his personal view that the current upturn in orders could be explained more by straightforward market growth on the back of decent economic conditions in the UK. He also cast doubt on the possibility of an order slump in the summer by suggesting that order peaks and troughs had tended to smooth out over recent years.

Indeed, many MDF market participants now accept that the summer “silly season” – when the seasonal drop in orders was traditionally greeted with significant and persistent price weakness – has been largely consigned to history. “There is far more discipline among European producers than in the past,” acknowledged a UK-based MDF importer.

Another source was more blunt in his market appraisal: “People who say the summer holidays will change demand are in la-la land. It ain’t going to happen this year.”

In the context of the debate about supply, it should also be mentioned that, if anything, the flow of imports has become even more restricted in recent weeks as producers in Continental Europe grapple with lengthening lead times while looking to take advantage of strong demand and the significantly more attractive prices available in their own back yard.

“Part of the pressure in the UK market comes from the fact that very little imported board is available,” TTJ was told. “The UK is an island and so to ship here is more of a hassle.” At the same time, the higher prices on offer in Europe have encouraged some exports of MDF from the UK, notably to support those customers who offer an outlet for more than one panel product.

Of course, these regular and significant increases in MDF prices are also underpinned by the need for manufacturers to recoup higher costs of, for example, transport and raw materials – notably wood fibre and methanol.

If the current MDF supply/demand situation had emerged several years ago, these pages may well have carried news of proposals to install additional production capacity. However, potential investors are being deterred by a number of concerns, not least worries over securing the raw material supply necessary to feed any new line as a result of additional competition from, notably, the biomass sector.

Commercial sense

At the same time, experts are questioning the commercial sense of finding a home for substantial new MDF production capacity in the UK or, indeed, anywhere else in western Europe. A manufacturer posed the question: “Why would you make the investment in the west when the east would offer a ready market from day one?”

It should also be noted that major new production projects can take anything up to three years to progress from the drawing board to the point where the first boards roll off the line. Given this timescale, it is unsurprising that a number of market experts predicted this week that the current seller’s market for MDF is likely to persist at least until 2009. This observation led one contact to comment: “People who spot buy or who don’t respect their buyers are the ones who will come unstuck.”