The extraordinary global demand for timber continues unabated and, as with all wood products, MDF supply is short, the market is on allocation and prices are rising regularly and significantly.
It is generally agreed, TTJ was told, that MDF demand is outstripping supply by 20-30%. Some MDF products were put on allocation in October 2020 and other products quickly followed and, with no change in demand forecast, allocation is expected to remain in place until spring or early summer next year.
“Demand will have to come off a long way from its current position before we can think about relaxing allocations,” said a manufacturer.
Another manufacturer said he had never experienced such a long period of allocation, and expressed his frustration at having to impose it. “I hate it. We want to be able to supply what the customer wants,” he said.
As with other timber products, the exceptional demand is driven by a global building and DIY boom as people upgrade their homes and governments recognise the pivotal role construction will pay in the post- Covid economic recovery – and the busy and lucrative US market is drawing product from countries that traditionally supply the UK.
The MDF sector is also suffering the effects of more than a decade of low investment. After the global financial crisis in 2008 a lot of capacity was taken out and not replaced so the current market is absorbing everything that is produced.
This constant, heightened demand means MDF manufacturers are producing as much as they can and distributors and merchants are focused on purchasing as much as they can.
One merchant estimated that 15-20% of his workforce was dedicated to trying to secure products across their range, while another said there was no time for business development. “We don’t need a development strategy because it’s a matter of get as much as you can and we’ll sell it,” he said.
He believed the company’s MDF mouldings sales would be up 50% in volume and 73% in value year-on-year, while for MDF sheets the volume would be 25% higher and sales value 40% up.
Along the supply chain traders are scrabbling for supply. One merchant said he had purchased from other merchants, just to keep product on the shelf, while back in May, a distributor already had plenty of orders for July and August. The distributor was also waiting for part of an order he had placed last November.
He added that he had managed to secure “bits and pieces” from European sources, for example Belarus, but in “weird sizes” such as 2440x1830mm.
In order to optimise press capacity and speed and to supply as much volume as they can, manufacturers have rationalised their product offerings, including removing low volume, high margin bespoke items or lower or higher thicknesses. One manufacturer said he had also increased minimum order quantities so presses were kept “stable and steady”.
“It’s a case of trying to optimise volume output from the mills,” said another manufacturer. “We have clear plans with customers about commitments but the reality is it’s difficult because every single customer we supply wants more.”
As a result, prices are rising and the market, desperate for product, is accepting.
“At the moment it’s a matter of getting hold of the product that does the job; price doesn’t come into it,” said a merchant.
Rises of 15% or 25% every few weeks are now the norm. One manufacturer described the increases as “significant year-on-year growth which is forecast to expand”, while several contacts said the price of 18mm raw MDF had doubled since early last year. One merchant whose supplier was to hold MDF mouldings prices until September had just agreed a 30% increase, imposed because of the raw material cost.
With manufacturers focused on uptime, MDF presses have been running flat out, and some have not had the normal breathing spaces to carry out periodic maintenance outside planned schedules. A breakdown or repair in today’s market would be particularly challenging as foreign engineers may not want to travel to the UK and they would probably have to quarantine before they could start work.
Manufacturers are doing maintenance but unlike in a quieter market, they have not been able to build inventories to support any temporary reduction in output.
European mills are also expected to shut down for their annual summer breaks, which will shorten supply further.
Manufacturers are facing the added pressure of the rising cost and short supply of raw materials. The price of logs, chemicals and decorative papers is rising and chemical shortages may affect what products some can make.
Now a haulage shortage is compounding the supply problems.
“It’s frustrating that when you finally have the product, you can’t get the lorry,” said an MDF manufacturer.
The shortage is not so much one of lorries, but of drivers. For more than a year Covid restrictions have prevented people from taking an HGV licence test and at the same time many European drivers who worked in the UK headed back home because of Brexit. The problem became more acute when retail reopened in May and this was quickly followed by the spring bank holiday and half-term when traditionally supermarkets push for more deliveries and some drivers take holiday.
“Everything is short,” said a contact. “Normally there’s some slack in the system but now every little thing disrupts everything. There are no buffers.”
One manufacturer said optimising back loads was particularly difficult – something he put down to “Brexit indigestion” – but he was reasonably sanguine, describing it as “just a business challenge”.
When or where this extraordinary market run will end, no-one knows but the consensus is that it will be well into 2022 before MDF demand could slip below supply. In late May the US futures price of timber started a fall which was still continuing in mid-June but UK traders are not predicting any reduction in demand for the foreseeable future.
“Unless there’s some significant event, there’s unlikely to be any abatement in the demand/supply for the next 9-12 months,” said a contact.
A merchant believed it would take a “seismic change in global demand” for anything to change and the indicators are that it is unlikely. “It will continue for the rest of the year – no question,” he said. “Only a demand slump will change it but I think demand will remain very high.”
In the UK, the Construction Products Association has forecast a 20% increase in housing starts this year and demand for MDF may increase further as retail, museums, exhibitions and theatres – all traditional MDF users – open again. “What we don’t know is how long consumer demand will remain but we are reasonably confident of it continuing through to spring,” said a manufacturer. “Even if it drops slightly we anticipate traditional areas will come back and support any easing.”
If there were a sudden shift it wouldn’t have an immediate effect because at present every mill is sold out and “there’s no material that will come into the market during that cycle”, he added.
While all contacts expected the high demand to continue through to next year, there is a slim chance that the market could rebalance as building projects are delayed because all construction materials are running short. In May, the Construction Leadership Council warned that some building firms may have to delay projects and others could be forced to close.
One merchant told TTJ he knew of roofing contractors who were putting work on hold “because there’s no point”.
Another merchant believed “it would take some bravery to halt sites” but the shortage of cement could force delays.
“Cement is needed for foundations so if something affects that, the whole construction industry will come to a stop,” he said.
However, for the present, he added, “production of all products continues and people seem to be willing to pay to secure product. Our average selling price is higher than it’s ever been on every timber product”.
There’s no doubt that current trading conditions are stressful and tiring but there’s also a recognition, and satisfaction, that these are glory days as timber’s value is at last being recognised.
“We should be celebrating what’s happening, not castigating,” said a merchant. “At long last our industry has products that are profitable, that we can invest in and grow, instead of thinking ‘how can we do it for less’. We have to recognise that this is a rebalancing of pricing that’s been way too low.
“But given everything that goes into getting a piece of timber to a building site I’d say it’s still cheap, MDF is cheap.”
Another merchant was confident that this new position would be sustained.
“I don’t think the price will ever go back to pre-pandemic levels because people see a value in the product now and it will maintain its value,” he said.
And it is an opportunity that the industry must not squander.
“As an industry, we have to find ways to make more, to invest,” said a manufacturer. “For a long time there wasn’t enough margin to incentivise our industry to invest. Now everyone wants wood and we don’t want to kill off demand by not being able to supply it.”
