Fears over the impact of the traditional summer trading lull on the MDF market have proved to be well-founded, with an acknowledgement from one manufacturer that prices for the commodity grades have reached “historically low levels”. In effect, the market has “gone through the pain barrier,” said one expert. “Merchants are cherry-picking out there and we as a trade are letting them do it.”
A general price reduction of around 4-5% has been introduced but, according to several industry experts, up to 20% has come off the value of some MDF products since late spring – albeit that the scale of the decline in real terms has been disguised to some extent by discounting and rebating activity. According to one experienced trader, UK market conditions are now “worse than when two domestic producers brought new capacity on stream at around the same time”.
Standard grades
Hardest hit by the price-cutting have been the high-volume standard grades, including 8×4 and 10×4 board in 12, 18 and 25mm thicknesses. As a senior spokesperson for one of the so-called ‘big three’ domestic MDF producers pointed out: “We would be in a very sorry state today if we were involved only in these standard grades.”
These same high-volume sellers have become the subject of ‘dog eat dog’ competition within the MDF distribution sector. Agents for imported board have been struggling to secure business in the UK due to the low prices available on this side of the Channel, although specialist boards are continuing to make an impact where they are filling a specific niche.
However, despite some patches of reasonable demand, even so-called value-added MDF products such as light, ultra light, FR, MR and mouldings have not escaped this bout of severe price weakness, even though it is widely stressed that the downturn for these materials has been less violent than those for standard board. Prices of decorative and veneered MDF products have also reflected the drop in core/substrate prices. Indeed, a leading producer of value-added MDF products pointed to price-cutting activity and described himself as “cynical and disillusioned about the commercial sense of some of my competitors”.
Differing opinions
Manufacturers’ opinions differ as to what the next few months may hold. One manufacturer confirmed that, with costs continuing to rise, current market conditions were “unsustainable” and that his own company would be looking for price increases of 6-12% across the board for MDF. Another producer believed other companies may shortly be forced to consider production curtailments in a bid to re-balance supply and demand. “It may prove cheaper to take downtime and those companies with the highest cost base will get there first,” he said.
Pointing to weak demand from key consuming industries such as the furniture trade, the same source added: “The weakness of the market has surprised all the manufacturers. We don’t think there has been an increase in MDF consumption this year – if anything there has been a reduction.” In other words, “aggressive” pricing policies have effectively created no new business.
On a brighter note, he believed that falling prices had stemmed the flow of imported board into this country. He also reiterated the “absolute determination” among domestic producers to keep overseas board out of the domestic market. Noting that demand on the European mainland for MDF was “just as quiet as in the UK”, he ended positively by saying: “If that situation changed, things could bounce back pretty quickly.”
Representatives of several overseas mills alluded to general “astonishment” among overseas producers at the “clearly unsustainable” price levels on offer in the UK.
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“Manufacturers don’t seem able to attune their production to demand on a flexible basis and, as a consequence, the market goes soft for everyone” |
A senior spokesperson for one of the other major producers acknowledged a slide in prices earlier in the summer, but went on to insist: “It is my considered opinion that the market has bottomed, albeit at a desperate level.” If demand followed its normal course and began to show signs of improvement during September and into October, “it wouldn’t surprise me to see prices starting to recover,” he added. The same industry expert calculated European consumption of MDF to be just 1 million m3 short of the current capacity of around 11.5 million m3 per year – “close enough,” he maintained, “to put pressure on prices”.
Similar sentiments were expressed elsewhere within the supply chain, with one contact suggesting that the traditional pick-up in demand during September would “take some of the edginess out of the market at a time when there is no new MDF production capacity in the pipeline”.
Little optimism
But while the future may hold some promise, the here and now is providing scant cause for optimism. The summer has been especially difficult despite the fact that downtime has been taken; it was confirmed, for example, that Weyerhaeuser closed its Clonmel plant in the Irish Republic for eight days for planned engineering works.
Indeed, the severity of current market conditions has once more revived the debate over whether domestic MDF producers should follow the lead of many of their mainland Europe counterparts and take scheduled periods of downtime during the summer. “The UK panel industry doesn’t seem to want to consider this as an option even though the consequence of a summer blip in demand is always falling prices,” one contact said. Another source observed that manufacturers appeared to be “under pressure to sell everything that they make” but also to keep the presses moving at all costs. He added: “Manufacturers don’t seem able to attune their production to demand on a flexible basis and, as a consequence, the market goes soft for everyone.”
His view won support elsewhere. An agent for imported board observed that “deals are being done here, there and everywhere in the UK to try to keep the presses running”, while one trader accused domestic producers of “flying in the face of the basic laws of supply and demand”.
On the flipside to the argument for summer downtime, one contact suggested that all producers would have to agree to production breaks for any such initiative to work. If some customers were unable or unwilling to order in advance so as to fall in line with a mill’s shutdown period, there was a danger that the business would be placed elsewhere, it was pointed out.
Summer blues
For the moment, demand in the UK is generally suffering from the summer blues. Many parts of the UK furniture industry continue to struggle and the MDF sector is still battling to overcome the impact of some major, recent failures within this customer base, most notably the demise of Home-PAC. A general dip in retail revenues has also led to the postponement or cancellation of shopfitting projects, thereby affecting consumption of MDF in general. However, the autumn is regarded with greater optimism since many shop owners will often look to refurbish their stores ahead of the Christmas sales rush.
According to several contacts, sales prospects have been dented by the depth of the price decline. One explained: “The industry has become its own worst enemy because decreasing prices have undermined customers’ willingness to hold stock.” Another complained: “UK producers will rue the day they allowed prices to fall to the level they are now. Prices have never fully recovered from when they went down before, and it will take a long time again for the market to recover again.” He was doubtful whether rapid price improvement was possible any longer given the increasing globalisation of MDF supply.
To add to this already busy supply scene, the same expert believed China would emerge in the coming years as a major player in the MDF market.
