In the early days of the fourth quarter, at least two of the three major domestic MDF producers were busy laying the foundations for a price increase in the coming weeks.
Both companies confirmed they intended to add around 5% to the price of both standard board and MR. One company said its increase was likely to come into force in late October while other was targeting November 1.
In both cases, the main reason given for the decision to hike prices was that costs have continued to rise, with the result that producer margins have been pared to a point at which action needs to be taken. A senior spokesperson for one of the companies said: "Overall, the cost trend is upwards and margins are being eroded all the time. We have reached the stage where we need to think about a [price] increase because there is no fat in the system." He drew particular attention to the rising costs associated with logistics, driven particularly by mounting fuel bills.
From his counterpart at the other MDF production facility known to be seeking a price increase soon, the message was also that there had been "an accumulation of costs" over recent months but that the company had opted not to push for a compensatory price increase before now "because we didn’t think the summer was the time to do it". He pointed to timber and methanol as examples of raw materials whose prices have climbed steadily over recent months. And while the urea price had experienced both ups and downs, "the downs have never really matched the ups".
Industry response
Several industry experts contacted this week, including leading distributors, were sceptical about any proposed increase at this stage. "I think it will struggle to go through – the market is pretty flat and so an increase would be unwelcome," said one distributor.
"Getting paid is still an issue – possibly because customers are being paid late by their own clients or banking facilities are a problem."
The key issues for most consuming companies in the sector are "cash flow, cash flow and cash flow", he said.
Another contact said he was keen to avoid any "slippage" in MDF prices but added that the market "would find it very hard to digest" any increase at present.
"People are not looking to fill their boots with material; in fact, some people are already thinking about their Christmas stocks in some product lines," he said.
Given that increases can take several weeks to bed down in any case, he questioned the wisdom of higher prices impacting the market just in time for the traditional Christmas slowdown. Indeed, he doubted whether an MDF price increase could be made to stick before January at the earliest. He supported his argument about the delicate state of the standard board market by pointing to strong evidence of some deals having been done over the summer.
Domestic producers acknowledge that the proposed price increases will be launched into a market which is far from its buoyant best.
Demand has been "haphazard" and unpredictable for several months, said one producer, and by way of example, he explained that "pretty good" order levels in August had been "a bit of a surprise" whereas September – a month traditionally associated with a post-holiday resurgence in activity – had been "not particularly clever" in terms of sales. October had opened "quite well" and order files for the month appeared to be "reasonable", but it continued to be "so difficult to make any forecasts", he added. "People are buying what they want when they want it, probably because they need to see an order first."
Combining the decent volumes sold in August with planned maintenance shutdowns, the same producer had emerged from the summer period with lower inventories. Stocks are now "under reasonable control", he said.
Fourth quarter expectations
A fellow producer also expressed satisfaction with his current MDF stock levels and was in broad agreement with his counterpart’s assessment of recent sales performance: August had generated "quite a good demand" for a summer month whereas order levels overall had been "nothing over the top".
He added that the company was "still selling what we make" and that there were expectations of a pick-up in demand in the fourth quarter, particularly from the furniture industry which traditionally grows busier ahead of Christmas.
Whereas UK demand for standard MDF was generally described as "steady" this week, more positive sales performances have been recorded by MR for the profile market as well as by both thin and faced MDF. Meanwhile, FR is said to have been enjoying "consistently good demand" – at least in part because of the reasonably strong shopfitting market at present. Nevertheless, one expert made the general observation that "a lot of people still seem to be buying pretty much hand to mouth even on some of the most popular niche products".
For veneered MDF, meanwhile, demand and prices were described this week as "fairly flat", with most consumers seemingly well-stocked.
Without doubt, increased export activity has helped to maintain a better balance within the MDF market. According to a spokesperson for a domestic producer whose overseas shipments now account for a double-digit percentage of the company’s overall turnover in MDF, exports have settled at more elevated levels – a development from which he infers "we are competitive, that is clear".
The growing importance to domestic MDF producers of this export "exhaust valve" is underlined in latest figures from the Timber Trade Federation (TTF): overseas shipments soared 36.8% from 85,000m3 in the first half of 2011 to 116,000m3 in the corresponding period of this year.
UK imports of MDF have followed their familiar pattern of late: volumes are relatively small, come almost exclusively from players with an established presence in this market, and are dominated by "specials" rather than commodity items. TTF statistics reveal that UK imports were virtually 11% lower in the first half of 2012 at 287,000m3 compared with 322,000m3 in January-June 2011.
Sales volumes
As regards sales volumes within the UK, MDF producers said this week that the first nine months of 2012 had seen little change from the same period last year, with one indicating perhaps a slight increase. However, feedback from leading distributors was more mixed, with one prepared to admit that his volumes were "behind last year, despite picking up some new business and having some new products".
To accentuate the positive, conditions in the domestic MDF market are certainly better than those in many other parts of Europe, particularly the south of the continent where the sales outlook was described as "awful". One domestic producer said: "I think we are further along with our crisis in the UK."
And positivity also surrounds the development of Tricoya, for which Coillte has exclusive rights in the UK, Ireland and Netherlands. Promoted at the Timber Expo 2012 show held in Coventry late last month, the emerging product is said to have attracted the scrutiny of a "high quality" of potential users.
Some of the interest was for applications in which timber has not been traditionally the material of choice where Tricoya could prove to be an easier material with which to work. If Tricoya were to win orders of this nature, then it would have the additional benefit of not taking away business from other parts of the timber industry, said a spokesperson. "We were very encouraged," he added. "We hope we will be able to convert this interest into trials."
