In historical terms, early summer MDF price increases have been something of a rare commodity. This year, however, the May/June increases have become sufficiently well embedded for domestic producers to be targeting further, significant hikes as early as next month.
Producers are describing the MDF supply/demand position in the UK as relatively “neutral” – a good sign, they say, given that the summer period is already well advanced. Other UK contacts confirmed this week that “no summer deals have been done” and that there have been “no signs of weak selling”.
A senior spokesperson for one of the three UK producers confirmed that his own company’s 3-4% price increase at the start of the summer had “established itself” and that prices had held up very well over the ensuing months, partly because summer demand patterns had been “slightly stronger than we would have anticipated”. And he added: “We have had none of the lunacy we have seen in the past in order to move inventory. There is potential for further price increases [and] they could happen some time in September.” Once again, it was emphasised that these increases were “still only covering costs”.
Customers have largely accepted higher MDF price levels because, it has been suggested, they recognise that producers are being forced to contend with rising costs and that the production sector has limited surplus capacity. The fact that other panel product prices have been rising at an even faster rate may have also made it easier for consumers to accept the MDF hikes. “It’s not a surprise that MDF price increases have held given that plywood and chipboard are buoyant at the moment,” one contact said. “To some extent, these markets drag each other along.”
Having indicated that the company could move up its standard MDF price by as much as 5-8% next month, the above-mentioned producer spokesperson pointed out that price levels in the UK were “more than 10%” below those on the Continent. Not surprisingly, therefore, the majority of European mainland-based producers were electing to sell their product “closer to home” where pressure on supply was generally stronger than in the UK. Indeed, lead times on the Continent are stretching well into the autumn in some instances.
Price differential
A market expert at another of the domestic MDF manufacturers put the gap between UK and Continental prices at nearer 5-7%. His own company had successfully implemented price increases in June and was planning a further 4-5% hike for mid- to late-September.
Although standard board demand was stable and lead times were fairly prompt, melamine-faced MDF and MR MDF for skirting were experiencing “quite strong growth” – to the extent that lead times on some of these more specialised products were “up to eight weeks”.
Meanwhile, following demand shrinkage in the first half of this year, UK orders for laminated flooring had also shown marked signs of improvement, he added.
This reasonably good – albeit still seasonal – domestic demand has been broadly satisfied by a supply chain which, in many instances, has been taking significant downtime during the summer. One of the leading home producers closed one of its lines for a week in July and is planning to shut its other line for a similar period this month. He told TTJ that these maintenance-related moves were not expected to disrupt supply given that in-house stocks were currently sufficient to cope with anticipated demand. But he added: “Inventory levels are rising only marginally, and certainly not at the rate that would have been expected.”
With supply and demand broadly in balance, ever-rising costs have again attracted the blame for MDF price inflation. The fact that the oil price reached record levels in early August has exacerbated fears of further significant price increases for petrochemical-related products such as resins.
At the same time, leading analysts are predicting that energy prices will be higher in the coming winter than in late 2005/early 2006. Producers are also concerned that mounting competition from the biomass sector will trigger substantial increases in timber costs.
Avoiding cheap imports
Such cost pressures would ensure MDF price progression even if demand remained within predicted bounds, producers told TTJ this week. Not for the first time, however, a number of contacts expressed the hope that these increases would be “in small increments” so as to avoid opening the door to cheap imports. One suggested that the next price increase should be postponed until “October at the earliest” on the basis that July had been significantly busier than normal and that sales in August and possibly September were likely to be adversely affected as a result.
Feedback from Continental producers tends to suggest that the UK is not about to be flooded with imports of MDF from the European mainland. Thanks to a combination of summer holiday/maintenance-related closures and above-average seasonal demand, Continental manufacturers “are starting to run out of certain products”.
As for MDF from further afield, a spokesperson for a well-known importer confirmed that Chinese product had been finding a home in the UK merchant sector. But he insisted: “We are talking hundreds rather than thousands of metre cube.”
According to the 2005-2006 annual report from the European Panel Federation (EPF), “exceptionally high” MDF production in 2005 was underpinned by growth in consumption. Output in Europe climbed 13.7% last year to 13.5 million m3 – slightly ahead of the average annual growth rate recorded over the last decade. The UK was joined by Luxembourg, Slovenia and Spain in registering a production drop last year.
European demand for MDF grew 4.7% last year – well below the annual average for the last decade of more than 12%. Of the 2005 consumption total of 12.039 million m3, laminate flooring claimed a 45% share, with the furniture industry back in second place. In terms of individual countries, the leading European consumer was Germany on 3 million m3 – an increase of 3.4% over the 2.9 million m3 of the previous year. The UK maintained its position as Europe’s second largest user of MDF, consuming 1.24 million m3 last year – or 3.3% more than the 1.2 million m3 recorded in 2004. UK demand is expected to improve by 3.2% to 1.28 million m3 this year.
Meanwhile, for 2006, UK production capacity is slated to remain unaltered for the fourth consecutive year at 870,000m3. Having increased almost 900,000m3 in 2005, MDF capacity growth in Europe as a whole is expected to edge a mere 189,000m3 higher this year to 15.054 million m3. This would suggest that, in the short to medium term at least, signs of tightness may become a familiar feature within the European MDF market.
On the news front, it was confirmed in early July that Sonae Indústria had completed the acquisition of the former Hornitex Group operations in Horn-Bad Meinberg, Duisburg and Beeskow, whose activities had been continued by the insolvency trustee for the last four years. The deal is thought to boost Sonae’s wood panel production capacity in Germany by around 1.5 million m3 to around 3.5 million m3. Chipboard is produced at all three locations, while the plant at Beeskow also manufactures MDF.
Meanwhile, Weyerhaeuser has divested a major chunk of its composite panels business. The group announced late last year that its seven production units – with a combined annual capacity of around 2.5 million m3 of MDF and chipboard – were being put up for sale for reasons of “strategic fit”. Confirmation came in June that the six facilities located in the US have been sold, as expected, to composite panel product manufacturer Flakeboard America Ltd.
That leaves the factory at Clonmel in the Republic of Ireland, which produces around 400,000m3 of MDF per year. Irish state forester Coillte is still in negotiation to buy the facility and an announcement is expected shortly, TTJ was informed this week.
