First the good news: MDF prices in the UK did not collapse over the summer as they have done in some previous years. On the downside, the discounts introduced towards the start of this traditionally difficult period for the trade were still largely in play at the start of October. And, given relatively unspectacular early autumn demand and the high level of competition in the UK, it is widely believed that these discounts could still be with us for a few more weeks.
Sales volumes “have not been disastrous” and have generally improved during the early part of the autumn, but they are still short of most companies’ hopes and expectations. These conditions have been blamed to a large extent on the general economic malaise that appears to have settled over the UK of late. In particular, discouraging news has emanated from a number of the timber trade’s most high-profile customers: B&Q, for example, has reported a more than 6% fall in sales for the quarter ending in July and has confirmed an intention to close 22 of its stores; MFI suffered a 31% slump in its sales for September compared to the same month in 2004 and was “equally gloomy” about prospects for October; and a recent CBI survey found that more than 90% of furniture retailers were experiencing a decline in year-on-year sales. “These are real maroon flares for everyone in the MDF business,” according to one contact.
Little overseas interest
The relatively low price of MDF in the UK has deterred most overseas producers from selling into this market, with the exception of those manufacturers with an established presence over here. A UK spokesperson for one Continental producer explained: “Our people say they can get better prices elsewhere. They have come in with offers but these were even above the levels that were available in the UK before the summer discounting started.”
According to another UK agent, his overseas producer contacts had described UK spot prices as “ridiculously cheap”. Meanwhile, a spokesperson for a UK company that has previously imported MDF from far afield said that virtually no material was coming in from outside of Europe at present “because of higher freight rates and because European sellers are prepared to talk”.
Demand appears to have picked up in the autumn but is still far from satisfactory – “but that’s not surprising given what’s happening on the high street”, was one domestic producer’s summary of the market. He anticipated that discounts would remain in place until some time next month, at which point he expected prices to return to close to their pre-summer levels. He also said that, from his own company’s perspective, “some pockets of the MDF market are doing quite well”. He highlighted reasonably healthy sales of MR into the construction sector, as well as decent demand from kitchen and bedroom manufacturers for melamine-faced MDF. According to reports, the FR market has also been quite stable. Some laminate flooring specialists, meanwhile, have reported a recent improvement in sales although retailers have continued to apply downward price pressure on this product.
Another of the leading three UK MDF producers described general market conditions as “not particularly bright”. However, he welcomed the fact that weakness appeared to have been contained: “I would hope to see opportunities for removing discounts by the end of the year.”
A spokesperson for another major UK producer recognised that the market was “very competitive” at present, but said that rising costs dictated that MDF product prices must also go up. He said: “There will have to be price increases unless we all want to keep on losing money.” Asked when his own company was looking to introduce higher prices, he said: “At the slightest window, companies are already making cutbacks and trimming their overheads where they can.”
The distributor network would also welcome higher prices for standard MDF since this would inject some much-needed value into what had become a low-margin – or even a “no-margin” – sphere of activity. Several contacts confirmed that they were currently offering MDF only as part of a wider package. “MDF on its own is not worth putting on the lorry,” was one comment made this week.
Rising energy costs
Once again, fuel and energy topped the list of cost worries among the domestic producer and distributor chain. Electricity price increases of up to 50% have been reported by some manufacturers, while rising oil prices have added substantially to everyone’s transport bill. MDF producers have also had to contend with the impact of higher oil prices on petrochemical-based resins. “The problem is that these are all direct costs,” said a senior producer spokesperson. “It’s on every cube we make.”
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“The Games are being planned for right now. MDF is well positioned |
Having pointed to the increased costs of fuel, power and resins, a contact with an overseas MDF producer said his company had looked to take the lead by recently introducing price increases of around 5%. “We needed to [do this] because of the continuous cost pressures,” he said. “Hopefully, everyone will follow us.”
In terms of energy, price is not the only concern: several contacts noted the recent suggestion by CBI director-general Sir Digby Jones that businesses could be forced to shut down this winter because the country’s energy reserves were so low. If the UK failed to sort out its “decrepit” supply system, he said, there was a danger that “we are, this winter, going to run out of fuel”.
Repositioning Medite
Market conditions were not the only topic to attract MDF industry comment this week: the recent announcement by Weyerhaeuser that it was repositioning its Medite MDF has certainly got the trade talking. Key changes made by the company include the rebranding of its standard and light MDF as “Medite Premier”, while its zero-added formaldehyde product has become “Medite Ecologique”. A spokesperson for the company said that market acceptance of these developments had been “very smooth” to date.
On the introduction of Medite Premier, he said: “We firmly believe it should open up a larger market because of the benefits it gives.” He said the product’s pluses include its weight and the lower tool wear it gives. He maintained that the repositioning exercise would improve Medite’s market access and help Weyerhaeuser distinguish its offer from its rivals’.
The majority of MDF experts contacted this week preferred to reserve judgement on the Weyerhaeuser initiative, although several remarked on the initial price of Medite Premier. Weyerhaeuser’s spokesperson said: “It has gone into the market at a competitive level. The price is based on the current market.”
He added that MDF remained “under-valued” and that the industry as a whole “has to get more money for its product”.
The timing of Weyerhaeuser’s announcement could be considered brave given current MDF market conditions. But while acknowledging that, in general, product was currently available to the market on a prompt delivery basis, a senior spokesperson for the company went on to argue that the gap between MDF supply and consumption in the UK was “still very small” and that any significant upturn in demand could bring a “quick” return to lead times. “The MDF market is still expanding – albeit slightly,” he said.
Olympic Games
He added that the award of the 2012 Olympic Games to London could have a potentially huge impact on demand in the not-too-distant future. “The Games are being planned for right now,” he said. “MDF is well positioned and it’s a very encouraging prospect.”
And as often noted in these reports, the UK’s overall MDF capacity has increased only slightly since the start of the new millennium and no major new production projects are currently on the drawing board. Development of new capacity takes time whereas surges in demand can be far more immediate.
