The MDF trade is entering the summer period with generally undisguised trepidation and a supply/demand balance described at best as “fragile”. Despite the optimism that was widespread in the trade towards the end of last year, 2003 has brought a steady weakening in the UK market, leading to fears that the traditional downturn in orders during the summer will see a return of what has been dubbed the MDF “silly season” after a reasonable period in mid-2002.

This week saw many key industry players looking back almost nostalgically on the events of summer 2002. During that period, supply into the UK market was constrained by, among other factors, the reduction in output at Weyerhaeuser‘s Clonmel operation as a result of the installation of its new continuous press line. Advanced knowledge of this supply disruption helped to sustain prices and demand through the normally difficult summer months, and also helped to create an environment for further MDF price increases into the autumn. By October last year, one of the major three domestic producers was introducing an MDF price increase of around 5%.

Unfortunately, the ingredients which created a very satisfactory summer in 2002 are missing from the current market, leading one industry figure to comment this week: “Nobody wants to be a forced seller into this market at the moment. The market has settled to a new lower level of purchasing and to a new lower level of sales.”

On the demand side, order files have not been as strong as many sellers had been anticipating, with the shopfitting and furniture trades said to be noticeably quieter than normal. Focusing on the former, one source alluded to “deep anxiety” among retailers about consumer spending levels and said this was largely responsible for delays and downscaling of shop refurbishment projects.

On the supply side, hopes were expressed this week that the major domestic manufacturers might calm the market’s current nerves by reducing production during the summer months and holding prices at existing levels. “The domestic manufacturers must take the lead,” insisted one MDF expert. “It would give much-needed confidence to the market.”

No major downtime

However, the trio of leading domestic producers appears to be planning no major production stoppages in the coming months. A senior spokesperson for Weyerhaeuser in the Irish Republic told TTJ this week that the plant would take an as yet undetermined period of downtime during August for engineering works in preparation for what he hoped would be an upturn in market activity in the early autumn. One of the other domestic producers said that his company was planning a preventative maintenance schedule which would affect only a few days’ production – not enough downtime to make any significant impact on the overall supply picture. The remaining domestic producer insisted that his company was not proposing to take downtime “on any of our products”.

Many market analysts trace the current difficulties back to the end of last year when producers were still aiming to maintain the steady momentum in MDF prices gained during the course of the year. Suspecting further price increases early in 2003, many buyers looked to build up stocks. Subsequently, unspectacular industrial and commercial activity has dampened demand for virtually all commodities. Hopes of further MDF price increases were dashed and, in its place, a chain reaction of deals and price weakness was set in motion. Indeed, there is now evidence of customers de-stocking in anticipation of being able to secure lower prices during the course of the summer. “My customers are so nervous that they are keeping MDF stocks to a minimum and buying on a hand-to-mouth basis,” said one supplier.

Despite what he described as “sluggish” demand and the struggle for market share, a leading MDF producer believed there was not a huge gap between supply and demand. He warned UK buyers against “anticipating an overreaction” in pricing levels during the summer, before adding that his own business would be making efforts over the next few months to target its surplus material at some non-traditional markets around the world. The company’s recent attendance at Interzum had confirmed that there were a considerable number of MDF sales options “outside of Europe”, he said.

&#8220Nobody wants to be a forced seller into this market at the moment. The market has settled to a new lower level of purchasing and to a new lower level of sales”

Euro strength

“We have resisted lowering our prices as much as we can,” observed another manufacturer this week, “but at the end of the day we have all got to sell our volume.” The weakness of the pound in relation to the euro had brought little in the way of sales gains to the domestic MDF producers, he added. A counterpart within another of the major UK manufacturing operations agreed: “With the weak pound, imports should have slowed up more than they have but the European market is poor, particularly in Germany.”

One source suggested this week that, owing to the strength of flooring sales outside of the UK, his mill in mainland Europe was not looking to follow the price reductions seen in this country. This approach also eliminated the problem for euro-zone suppliers of selling into the UK when sterling was weak in relation to their own currency. “Based on the strength of the euro, even those Continental producers with a niche in the UK market are finding life quite difficult at the moment,” TTJ was told.

Meanwhile, a supplier of US dollar-based MR and standard board from South America was reporting very satisfying sales in the UK “partly due to the exchange rate”.

The price weakness in the UK has applied in particular to the 6-30mm standard MDF thicknesses, for which lead times have become almost non-existent. “The 6-30mm thickness prices are all over the place,” according to one source. “The commodity middle ranges are the real battle area.”

By comparison, what the MDF sector terms as ‘specials’ – MR, MF etc – have been enjoying more price stability and lead times far closer to their norms, although several contacts emphasised that these were not “the volume sellers” in the MDF market. One senior producer observed: “Demand for the specials is running largely as we would expect at this time of year, whereas demand for standard board is below expectations.”

With all the nervous sentiment surrounding MDF at present, it would be easy to lose sight of the long-term perspective. The product has captured a massive market in a comparatively short amount of time and is continuing to attract an ever-increasing volume of sales.

Laminate flooring

The European Panel Federation recently confirmed that Europe’s MDF production broke through the 10 million m3 barrier last year, driven to a large extent by the huge, ongoing demand for laminate flooring. In the context of the recent downturn in the UK’s MDF market, one contact noted: “I am sure laminate flooring has been the saviour for one or two companies, but you have still got to work very hard at it. It is not an easy business.”

And as one of TTJ’s more optimistic contacts ventured this week, MDF has developed a broad base of customers around the world and lower prices can act as a spur to the development of new applications. Looking to more immediate UK market prospects, however, the underlying desire among most sector players is for stability. “The main priority for the months ahead is to give a platform for price growth later – to make sure that nothing disturbs the market until the better trading months beyond the summer.”