Over recent years, the MDF sector has entered the summer period with a sense of trepidation. Almost universally described by traders as the ‘silly season’, it has become synonymous with bargain prices sparked by reduced demand. This in turn has generally led to a period of weakness from which the market has often taken months to recover.
It is small wonder, therefore, that the trade has reacted with a mixture of delight and surprise to the more positive market conditions that prevail at the beginning of summer 2002. Demand for MDF is generally strong and prices are expected in many quarters to hold at the higher levels established over recent months. Lead times are also unrecognisable from this time last year when, according to one dry wit, availability could be quoted as “yesterday”.
Furthermore, traders have the comfort of knowing that significant production will be lost to allow for the installation of a new line at Weyerhaeuser Europe Ltd’s factory at Clonmel in the Republic of Ireland, which was formerly operated under the Willamette Industries banner.
The plant’s existing multi-daylight Washington Ironworks press is due to be switched off at the end of this month to allow for engineering work for the new continuous press line – an event scheduled for July 15. A spokesperson confirmed that the company would therefore lose two weeks of production from a single line and that production would be “committed very shortly for the whole of July”. Lead times had become “artificially long”, it was added, because of the impact of the engineering work.
Summer bargains
In previous years, when summer bargains were looming, several prominent industry players argued in favour of orchestrated domestic producer downtime in order to help ease the market through a period of notoriously reduced demand from key consumers such as the furniture industry. This year, by contrast, there promises to be an enforced loss of production at a time when the market fundamentals are distinctly more positive in any case.
The UK is benefiting from what appears to be an almost global upturn in demand for MDF, as a result of which, overseas producers have been concentrating their efforts far closer to home rather than on the possibility of selling into the UK market. Several contacts pointed to a particularly strong flooring market, with one suggesting this has helped to create “a shortage of thin MDF on an international level”.
Despite recent price increases in the UK, prices on the Continent are still reckoned to be 4-5% higher, with the result that the UK “is still not an attractive market for most overseas producers”. Furthermore, the euro exchange rate is dampening the flow of product into the UK.
Strong demand
The large domestic producers were talking this week in terms of “full” or at least “very strong” order books as well as demand far in excess of the level witnessed at the same point last year. “I am oversold but we are producing quite well,” said a spokesperson for one of the big three domestic manufacturers. Demand was healthy from both the manufacturing and distribution sectors, while the huge and increasing popularity of laminate flooring was taking away volume from other areas and therefore maintaining a strong forward momentum in the overall market.
He added: “Europe faces the same issues as the UK. Demand is quite buoyant and so producers are looking to their own markets first. It is a good position to be in.”
As for prices on offer from the major domestic producers, one said that April increases had held firm and that, in order to support existing customers, these levels were likely to remain during the summer, despite strong orders. However, he said further price increases were “inevitable” following the summer, given the momentum now established in the market and the need to re-establish the true value of MDF.
Another of the domestic manufacturers agreed that “we will look extremely hard at increases for September 1”, partly in response to a substantial rise in the price of methanol – now perhaps 30% higher than in the first quarter – which was likely have an impact on production costs during the second half of the year. But for the moment, he added, the company was “fairly relaxed and fairly bullish” and was unlikely to change prices. Its last MDF price increase had been announced early in the second quarter but, in reality, had only recently come into full effect.
Across-the-board
According to a spokesperson for a producer that introduced a 5% across-the-board price increase for June, “we have a determination to stop losing money on MDF”. While acknowledging that some lead times had begun to reduce slightly with the arrival of summer, he anticipated that new price levels would hold and that more increases might be necessary after the summer.
The MDF market appears generally content that the general price trend is upward and that value is returning to MDF as a product. “Merchants and distributors realise it has been too cheap for too long,” noted one prominent contact. Indeed, there was even a suggestion that prices for some types of MDF still required upward adjustment. One source singled out MR MDF: “Domestic manufacturers should look at this because it has not gone up in line with standard board. Perhaps the focus for the producers has been on other areas of the market but the MR MDF market is quite strong.”
