Summary
¦ MDF manufacturers costs are rising.
¦ Some distributors have not been able to push through the full recent price rises.
¦ In anticipation of further rises, end users are holding stock.
¦ UK standard MDF prices are said to be 8-10% below those in Europe.
¦ The level of demand is still a concern.

Underlying demand for MDF appears to be no better than steady in the UK, but producers are determined to manage their outputs to ensure that prices remain locked on their upward course.

MDF consumption in the UK is “not that strong”, TTJ was told this week. However, in the absence of large volumes of board coming in from the Continent, the “big three” UK producers “are picking up the slack” and are working at or close to capacity. Lead times have extended to around three weeks in some instances.

Indeed, following on from the raft of price hikes earlier in the second quarter, a senior spokesperson for one of these local producers refused to rule out the possibility of a further increase at some point in the summer. Focusing on the cost burden weighing down producers, he pointed out: “Fibre costs are on the way up and are not going to fall. And glue is bought in US dollars, so the exchange rate has hit us.”

One of his domestic producer counterparts added energy to the list of costs bearing down on the industry. “Gas prices are far higher than we would expect at this time of year and there seems to be no justification for it.” And another producer spokesperson bemoaned the rising prices as well as lead times of four to five months affecting MDF papers.

It is generally agreed that raw materials supply and costs rather than rising demand are the main driving forces behind MDF price increases. As a result, the response to any drop in demand during the summer is likely to be met with production cuts rather than price reductions. “I cannot go into a lower price situation,” said one producer. Asked whether a further price increase on standard board was in the offing, he replied: “Let’s see how the summer goes.” His facility is currently running at full capacity and that only the conventional four- or five-day maintenance stop will be taken in the summer if demand continues at its current level.

This reluctance to rule out a near-term price increase also extends to Continental producers, with one assuring TTJ that an upward move will be made “if not in the summer, then just after the summer”. Orders are “coming in nicely” for various forms of MDF, including MR and FR, he added.

Distributors’ offers

Whereas MDF producers are offering “no latitude” on prices, some distributors “may be tempted to take a little bit of business at a lower price on a short-term basis”, TTJ was also told this week.

A number of leading distributors spoke of the difficulties in pushing through the entirety of the latest MDF price increases which were introduced mainly in early May and averaged out at around 5%. “I felt that 3% rather than 5% would have been better,” said one. “Not all of the increases are being implemented in full by distributors.”

And he added: “We are seeing a bit more activity in shopfitting, and joinery is quite good, but the furniture sector is difficult. None of our depots are reporting exceptional levels of business and there still isn’t a massive amount of confidence.”

Despite these misgivings, he called on MDF producers to remain firm on price. “We should be looking for a steady summer,” he said. “My advice to them would be to hold your nerve and go for another price increase in the autumn.” According to another prominent distributor, MDF producers appear to be “doing their absolute utmost to stand firm” on price whereas some distributors have been prepared to offer lower prices. However, the actions of the latter have not blown the market off its generally upward course, he added.

Having mentioned improved demand for MDF in May and more particularly in April, he too expressed uncertainty as to whether the trade was currently strong enough to withstand another increase ahead of the main summer holiday season. “There is always a downturn in the summer for MDF and producers have overcooked it on price before,” he said.

Veneered MDF

The upward price trend also extends to veneered MDF, with one seller confirming this week that he would be following up a hike of around 5% in the first quarter by asking for a further 2-3% from the beginning of July. “The costs of MDF and the veneer have both gone up,” he explained. “In fact, the increase is still not enough considering how much MDF has gone up.”

He reiterated concerns over a perceived downturn in the general quality of veneered MDF in the UK market. The big fear, he said, is that people are being encouraged to buy on price rather than on fitness for purpose and that, ultimately, some buyers will seek out alternatives to veneered MDF altogether, such as melamine. It made no sense, he said, to buy a cheap veneer when it represents such a small component of the overall cost of, for example, a luxury kitchen.

Despite the most recent round of increases, domestic prices of standard MDF are still estimated to be 8-10% below those prevailing on the Continent. “Offers from European mills are way off,” said an importer. “With the exchange rates as they are, imports are no threat to UK producers at the moment.” And as regards the extremely small quantities of MDF currently entering this country, most consignments fall into the category of “non-standard” items. Indeed, a Continental producer has cut back on the volumes of “commodity” items it sends to the UK – including 12, 15 and 18mm board – because of the unviable price differential.

On the Continent itself, the closure and idling of MDF production lines since the onset of the recession have helped to keep prices on a firmly upward path. “Now we are tending to see rest days rather than line closures – but that’s still a reflection demand is not too great,” one contact said. Across many parts of Europe, some producers of laminate flooring “are still seeing their sales going backwards”, he added by way of example.

Export opportunities

As well as picking up business as a result of the reduced flow of imports, domestic producers are also reporting an increase in their export opportunities, not least because of currency fluctuations. According to one of them, his overseas shipments are “higher than normal and rising”, partly because the strength of the US dollar in relation to the pound has opened up new markets which, in some instances, lie well beyond Europe.

Staying with events further afield, the earthquake in Chile in February has had a significant effect on the panel markets, notably plywood but also MDF, given that the South American country is an established supplier of mouldings in particular. The disaster not only disrupted production facilities but also damaged the infrastructure that allows producers to ship their product to market. Although output figures in Chile are gradually returning to normal, UK prices are still too low – despite the May increases – for the shipment of material across the Atlantic to make commercial sense, a regional specialist told TTJ.

Despite the almost universal assumption that the rising trend in MDF prices will be maintained, there is a similarly widespread acknowledgement that underlying demand and consumer confidence levels are still giving cause for concern. End users are tending to order more than they need in the short term because they expect prices to rise and so are looking to cover their material needs at the lower prices for projects booked further ahead. As a result, there is a marked trend towards MDF stocks transferring from producers to consumers.