Summary
• Manufacturers are expected to raise prices by around 5%.
• Forward ordering is said to be around one to two weeks.
• There is expected to be little improvement in the market this year.
• Rising costs continue to be a problem.
• The weak pound is deterring European producers from the UK market.
All eyes in the MDF sector were on manufacturers as rumours of an imminent price increase of around 5% circled the market in early April – although several sources said “I’ll believe it when I see it.”
However optimistically people responded to the buzz about an increase, some felt it would not be sufficient. “It needs to be double figures,” said one manufacturer, although he added that he didn’t think the market would have the courage for that. “What we might see is price increases going forward on a steady basis, little and often,” he said.
Prices for MDF have been too low, said another manufacturer. The market needed to pull out of the spiral of “permanent decreases”, which hurt manufacturers and distributors, leaving them working at “unsustainable levels”.
Taking downtime doesn’t seem to have balanced out production with dwindling demand either. “None of the normal parameters you’d normally expect to correct supply and demand equations are working. And a consequence of that is too low prices and curtailed production because demand is insufficient,” said another supplier.
Price rise confirmed
One domestic manufacturer confirmed it would raise prices in single figures mid-month. Another told TTJ it had hitched prices by about 4.5% in the hope of “re-establishing the value in MDF”. He said so far the increase seemed to be successful.
One source said he hoped rising prices would encourage distributors to start ordering again. On average, forward ordering has been hovering around one to two weeks. Distributors aren’t rushing to buy and are keeping their stocks tight because, as one said, product is “virtually instantly available”.
It is part of what one contact described as a double whammy: prices from manufacturers staying depressed and distributors working on much tighter margins, as all the while demand slipped. He hoped, in the event of a price increase, adding more value back into the market would provide an opportunity for distributors to adjust margins and obtain more value themselves. Distributors shared the hope, but weren’t sure how quickly they could push higher prices down the line. Indeed, some wondered if it was yet possible.
No-one seemed certain of whether prospective price rises would be sustainable, leading some to hang fire and wait to see what kind of deals the big UK manufacturers enter subsequently. “It would only take one of them to do a deal and prices will come back down again,” TTJ was told.
Settling down
The concluding opinion was that the last quarter of 2008 was very tough across all board types and in the first quarter of 2009 production volumes were still down from last year. However, while not mentioning “bottoming out” several people expressed a feeling of the market settling down to a “steadier more stable pace”, albeit at a low level, in the past two or three months.
Distribution sources said they saw a slight pick-up in demand before Easter, but stressed it might have been an artificial pre-break glitch and reiterated that it was a small increase. One added he saw a small increase in demand in shopfitting, and mentioned that furniture had not been hit as badly as expected, certainly not as hard as construction.
One manufacturer also told TTJ that, while others may be taking downtime, he has increased production and is looking to keep it there. Taking a glass half full approach, those that have introduced downtime say that it has at least enabled them to get stocks balanced with demand.
Rising costs are an aggravation the industry doesn’t need, however, with increases for electricity at the end of last year and still no drop in sight for gas prices for many. One contact remarked on the increase in the cost of resin, plus a shortage of transport vehicles as activity across all sectors slides, putting pressure on deliveries, lead times and stock levels.
European production
It is an ill wind, however, and UK producers might be on the receiving end of a lucky break, as importers feel pressure from the weak pound and pull European product from the market. They say increased costs of selling in sterling have been significant. “On the other hand, if the euro starts weakening, there are going to be some European suppliers eyeing this market,” said another distributor.
But another company “producing in euros” said the exchange rate was still causing less impact than competitors cutting each other’s throats on price.
Looking further forward, several people hoped for slightly increased demand in the next few months and then the secret, said one, was getting through the summer. “If that goes okay, we’ve left the worst behind us,” he said.
There are a few spotters of recovery, but still no more than tentative early signs. Few seem to expect much change during 2009 and most are looking to 2010 or 2011 to bring significant improvement.
