As anticipated, the UK’s MDF manufacturers acted to maintain an upward price momentum at the start of the first quarter. And while the supply chain is almost universally delighted to see more value injected into the product, the process of increasing prices could not be described as problem-free, with many experts declaring that the higher prices have yet to be fully absorbed.

According to a senior spokesperson at one of the leading domestic manufacturers, several distributors have reported difficulties in pushing through the latest round of price rises estimated at between 7-9.3% in real terms. He warned: ‘If they can’t push their prices up, then we will have to find other ways of bringing our product to market.’

Little surprise has been shown at the relatively slow demand for MDF in the first month of 2001. Many end users took extended new year breaks and returned to full production only during the second or third week of January. At the same time, many distributors and operators are understood to have built their stocks during December, and therefore have been working through inventories during the early weeks of the year.

‘Distributors have not been able to move prices along to their customers as yet, but as the cheaper stock diminishes they will have to sell at replacement cost,’ TTJ was told this week.

As we head into February, reports suggest the existence of a ‘hybrid’ price picture. A spokesperson for another major producer explained: ‘When prices are put up, there is always resistance from the end user who starts to shop around.’ But while some buyers may have been able to secure a below average market price in recent weeks, the latest producer increases will ultimately be absorbed, he insisted.

One contact suggested the market had absorbed on average only around 3-5% of the latest price rise as a result of ‘undercutting’, although he believed it was only a matter of time before prices hardened. Another believed that, in real terms, there had been ‘almost no rise’ at all. ‘It has been a bit of a struggle,’ he said. ‘Due to the competitiveness in the distribution sector, customers can always find someone prepared to delay the price increase. It’s always the same when you get two price increases close together.’

And he added: ‘Manufacturers will always try to talk the market up but the bottom line is what distributors are able to sell the product for.’

Assertive pricing

MDF manufacturers are in a decidedly assertive frame of mind where pricing is concerned, to the extent that one senior player acknowledged accusations of ‘intransigence’. He said: ‘We are not in the mood to go back on these price increases because of increases in our cost base. If one of us [the manufacturers] capitulates, we will all end end up selling the same volume for less money.’

Another producer contact agreed: ‘There really is only one way to go now – and that is to drive prices up.’

Domestic manufacturers contacted this week insisted unequivocally that MDF prices were set to increase again at the start of the second quarter. In terms of quantifying the scale of that forthcoming increase, one said it was too early to talk in terms of percentages but added that he anticipated ‘gradual, quarter by quarter’ price rises in the UK this year. Another ventured: ‘We will be aiming for another 9% rise in real terms in the second quarter.’

Manufacturers point to their cost base as one of the main justifications for continuing price increases. Energy costs are ‘very high’, methanol has ‘stabilised in price but at a very high level’, while melamine costs have reportedly climbed a further 3% in the first quarter of this year from what was an already high point. According to one source, resin costs soared by around 25% during 2000.

‘Wood costs are not going down either,’ stressed a leading producer figure. ‘There is now a shortage in the fibre we use and that is pushing prices up. A lot of private foresters are sitting on their assets and that is tightening up supply.’

The domestic producer view is supported by the European Panel Federation (EPF) which, at its general assembly in Brussels last year, complained that its members had had to suffer an up to 50% rise in production and distribution costs during the first 10 months of last year, as well as 50% and 10% increases in fuel and transport costs respectively over the 12 months to October 2000.

Other factors pushing in the direction of further price increases include a rising market on the Continent and highly promising MDF demand forecasts for the current year. EPF statistics suggest that consumption in Europe as a whole improved by 18% in the first half of the year 2000 and all the indications are of further gains during 2001. At the same time, EPF anticipates only a 13% expansion in Europe’s MDF capacity over the next few years.

Supply and demand gap

Given these circumstances, many experts – although not all – anticipate a significant narrowing of the gap between supply and demand in the UK during the course of 2001 – to the extent that some are prepared to talk in terms of possible shortages. Said one leading producer figure: ‘There is no doubt that, when supply and demand come close together, it doesn’t take much to kick the market into shortage. The gap is considerably narrower than it was, but the timescale [before shortages occur] is anyone’s guess.’

Another manufacturer said: ‘At some point this year, we are predicting that supply and demand will be more in balance. We expect shortages to appear in certain specifications during the peak demand months.’

A handful of contacts even suggested that some specifications were already not so readily available as in previous months, although to date there appears to have been little change in manufacturers’ lead times.

Serving in part to underpin this generally upbeat outlook is the continuing strong demand for laminate flooring with an MDF substrate. This product is believed to command a 7% share of Europe’s total floor coverings market but, as one expert pointed out this week, a single percentage point increase in this share is equivalent to the output of a reasonably large MDF plant. Another expert put current volume growth of this market at around 15% a year, compared with 5% for melamine faced.

Laminate flooring

The Sonae laminate flooring plant at Knowsley is said to be running ‘extremely well’ with demand biting a significant chunk out of its total capacity of 6-8 million m² per year, according to a senior company spokesperson. Meanwhile, Kronospan is on schedule to introduce an additional 6 million m² of laminate flooring capacity at its Chirk plant by the second quarter, with construction work already started on the £3m project (TTJ February 3). According to a spokesperson for the North Wales operation, the laminate flooring market can be expected to continue growing strongly in 2001 before beginning to level out at 12-14% of the total UK floor covering market during 2002 or 2003.

Kronospan also confirmed that it has yet to identify a suitable location for the 150,000m³ MDF plant acquired from Junckers of Denmark last year (TTJ December 9, 2000).

With UK prices of MDF still at a relatively low level, imported MDF continues to play a diminished role in the UK market. Niche products continue to enter the country and appear to be finding reasonably strong demand among their respective customer bases. However, the commodity end of the MDF market is seeing little in the way of overseas material. One contact said this week: ‘I have lost all my laminate flooring and commodity MDF business in the UK because the big boys have moved in on both.’

A spokesperson for one of the so-called ‘Big Three’ domestic MDF producers believed that the normal imported board players would still have an important role to play in the market. ‘If there is to be more of an equilibrium in supply and demand this year,’ he suggested, ‘then they will provide some of the means to allow the market to grow.’

The MDF mouldings sector has reported a slower than normal start to the new year, with some customers still said to be complaining about the effects of the floods on their activities. Noting that there was no single trend in price movements, one manufacturer complained: ‘I don’t understand it but some of my competitors are putting their prices down.’ He went on to suggest that the MDF mouldings sector had lost some of its lustre and that it no longer represented ‘the easy way to make money that some people thought’.

Jeld-Wen purchase

On the news front, it was announced late last year that mouldings manufacturer SVL Building Products Ltd had been acquired by joinery manufacturer Jeld-Wen UK Ltd (TTJ December 16/23). Under the agreement, SVL has stopped manufacturing a wide range of MDF mouldings which were distributed through the trade from its factory at Alton in Hampshire. A new MDF processing line based on SVL technology has been constructed at Jeld-Wen’s Sheffield site, and has been joined by the plant from Alton. Jeld-Wen described the acquisition as a logical extension of its doorset business.

Taking the MDF market as a whole, one leading producer believed 2001 would be ‘a better year for the industry and for customers’ since higher prices would bring more value to the market and would allow customers to lay down stocks with greater confidence.

While most contacts were content to subscribe to a largely positive view of the coming year, at least one expert believed that the market was ‘too early to call’. He said: ‘The market needs to be managed according to supply and demand but at the moment it is being driven by the manufacturers’ cost base. Just because costs go up doesn’t mean you just put another penny on the price of the product.’