Ongoing tight supply in the UK market has fuelled domestic MDF producers with the confidence to introduce early-summer price increases. But after a first half to 2007 in which increases have been implemented generally every two months, MDF manufacturers are indicating they may shelve any further price rises until after the summer.

Hikes of between 3-9% – depending on the product and the manufacturer – have been scheduled for mid-June or July 1. A spokesperson for one of the leading producers has confirmed that a 7% price increase imposed on raw MDF and some special items in early May had been “fairly quickly” absorbed by the market. And with the order file remaining under pressure, the company’s prices of raw board, MR and some specials would be raised by a further 7% on average with effect from July 1. The FR price “is being looked at”, he said.

Another of the leading three domestic producers contended that its 6.5% price hike of May 1 had been absorbed “very well” by the customer base. The company was proposing to lift its faced MDF price by between 3-8% from mid-June while, on July 1, raw board and MR levels would be increased by some 6.5% and 5% respectively, it was confirmed.

Strong demand

The remaining domestic MDF manufacturer said that it was proposing to increase prices by, on average, 8-9% with effect from July 1. Demand was surprisingly strong heading into the summer – especially for MR mouldings, a spokesperson added.

Lead times vary among the big three domestic producers, with one working to a maximum of two weeks while another is operating at around eight weeks. According to contacts, these time frames have shown little sign of shortening over recent months. The third producer, meanwhile, confirmed that its lead times had actually extended of late, to an average of around 7-8 weeks.

Other pointers tend to indicate ongoing shortness of supply. For example, one domestic producer took a week’s maintenance-related shutdown in May and is planning no further stops for the rest of the summer. And with the streamlining of its product range and other efficiencies, the same company expected to boost its production by 10% this year. But despite these developments, it was still not in a position to take on a significant number of new customers, according to a spokesperson.

It was also claimed in manufacturer circles this week that May and June represent a traditionally softer period for demand and yet, in 2007, these months had provided stronger business conditions than last year. One producer commented: “You could say that we have got through the worst this year – and it wasn’t that bad.”

But although UK demand appears to have held up relatively well across the board despite the recent run of price increases, producers and distributors are mindful of the pressure these ever-increasing levels have placed on end users, many of whom – for example, furniture manufacturers – are struggling with lacklustre sales conditions in their own sectors. A leading MDF producer acknowledged that price increases had left the market somewhat “punch drunk” and that the upward adjustment might be kept back until October – in other words, a three-month gap rather than the two-monthly pattern established in the first half of 2007. Another of the domestic MDF manufacturers said that his company would consider the scope for a price increase in September but added that October was a more likely choice. “We have to give our customers a bit of a chance to digest the increases and pass them on,” TTJ was told.

Finely balanced

The UK market was more finely balanced than in the recent past and, with respect to price increases, producers were “getting fairly close to the point where they need to be careful”, according to a leading MDF specialist. He expressed the concern that demand had been underpinned to some extent by “over-ordering” among customers fearful of missing out on limited supplies and of facing further price increases. His own company had succeeded in passing on the May increases “virtually straight away” but he was “not convinced” the July hikes would become so quickly established.

Another contact believed that domestic MDF manufacturers had “got it wrong” and that some distributors were not in a position to pass on the latest increases to end users who were already struggling. “We are already seeing one or two bad debts,” he noted. “The holiday period will be a testing time unless manufacturers and distributors have got order files through the summer.” For the moment, he regarded UK demand as “steady to good” but “not spectacular”.

In similar vein, melamine-faced and veneered MDF have attracted healthy demand over recent months and yet several contacts suggested a quieter start to June with certain orders having been postponed.

While some leading distributors and end users might be casting doubt on the wisdom of producers pursuing further price increases, the MDF manufacturers themselves are happy to list the market factors that have continued to push them along this course. Lead times have been holding firm in the face of reasonably solid UK demand while import pressure has dwindled as this market becomes less attractive to many overseas producers owing to the strength of demand nearer to home and to the fact that prices in this country are still lagging some way behind those prevailing in many parts of, for example, Continental Europe.

In this context, major MDF capacity expansions planned for central and eastern Europe in the second half of the year are regarded as unlikely to impinge greatly on the UK market.

The new capacity being brought on stream in, for example, Turkey is a direct response to burgeoning demand both within the country itself and the surrounding region. Therefore, it is deemed highly unlikely that board will migrate westwards to affect the UK – not least because of the additional transport costs that would be entailed.

Chinese imports

Even the possibility of significant standard MDF imports from China has receded on the back of rumours that the country’s export tax incentives on all wood-based panel products are to be chopped from 11% to 5%. If this were to happen, said one expert, the Chinese material would be in danger of becoming “uncompetitive” in the UK market. Also dampening the prospects of Chinese MDF making the journey to the UK are freight rates which have recently “gone through the roof”.

The same expert confirmed that samples of Chinese material had been well received by some prospective customers in the UK. At the same time, contracts had been issued for veneered MDF from China. However, all business had been put on hold pending clarification of the export tax incentives.

However, at least one key importer figure believes rising prices in the UK are bringing MDF imports from outside of Europe “into range”. “We are approaching a line on the graph where producers elsewhere in the world are being brought into play,” he said. His own company had been conducting “market research” into the possibilities, he added.

It should be remembered, as one of the domestic producers pointed out, that the price increase in July will return MDF prices to, in broad terms, their 1987 levels. And it should also be borne in mind, he added, that the intervening 20 years have produced significant increases in raw material, energy, labour and a whole range of other costs. “We are not increasing prices for the sake of it,” a spokesperson said. “These increases are based on real supply and demand parameters.”

Further increases in timber costs are widely anticipated for the autumn, with competition for material set to be exacerbated by new biomass plants coming on stream in the near future.