The wave of confidence on which the domestic MDF sector began the year has been checked by a significant drop in demand resulting in at least one of the leading home producers shelving plans to raise prices. While the market place is nervous about the loss of momentum, UK producers believe the fundamentals for MDF remain strong and current conditions will prove to be no more than a “temporary glitch” with price increases becoming an option within weeks.
Lead times of between two and four weeks in the run-up to Christmas have contracted sharply during the first quarter of 2005. The maximum is between seven and ten days, and many of the high-volume MDF products are said to be available ex stock. One industry source said: “I would be amazed if you had to wait more than a week for a bread and butter product.”
UK stocks are thought to be on the high side at a time of lacklustre demand from a number of key customer sectors, including the furniture trade and somewhat patchy demand from the building trade and shopfitters. “Producers are desperate not to drop their prices, but warehouses will only hold so much,” TTJ was told. Competition has become competition in the standard and light board sector, and this trend has even extended to MR as sellers are said to be “working on lower margins than they have in the past”.
The impact of imports appears to be a matter of debate. Several industry figures suggested this week that overseas producers were taking greater interest in the UK because of flat demand at home. Others believe that UK prices 10-15% lower than those prevailing in Continental Europe are unlikely to attract foreign manufacturers. In general, it would appear that some regular MDF exporters to the UK might have attempted to push additional tonnage here to compensate for quieter demand in domestic and other export markets.
Sentiment in the MDF market is said to have been affected by the recent steep decline in OSB prices and MDF sales are expected to be dampened further not only by forthcoming public holidays on the Continent, but also by the announcement of the general election in the UK. One source said: “In the past, general elections have had a noticeable effect and people have held off buying to some extent, so we can expect buyers to be conservative with a small ‘c’ over the next few weeks.”
Price increases introduced around the turn of the year have been holding up in the main although several people in the industry are concerned about the dangers of weak selling by companies determined to keep market share. It is not clear to what extent these fears are based on hard evidence.
Growing confidence
Undoubtedly, buying patterns were hit towards the end of the first quarter by the combination of an early Easter break and companies keeping stocks to a minimum in the run-up to the end of the financial year. Given that both these obstacles to normal business have now been removed, there is widespread confidence in renewed purchasing activity. One industry figure confirmed that enquiries perked up overnight after the financial year had ended at the beginning of April. It remains to be seen whether this anticipated upturn during the second quarter would be of a sufficient scale to spark upward price movement.
A senior spokesperson for one of the leading domestic producers said price levels were under constant review and further increases could be implemented as early as May 1 if, as anticipated, market conditions improved. He said: “Costs have continued to rise very significantly. Earlier rounds of increases have proved to be a bridge not far enough and as a result MDF manufacturers were beginning to be squeezed.”
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“In the past, general elections have had a noticeable effect and people have held off buying to some extent, so we can expect buyers to be conservative over the next few weeks” |
Contrary to feedback from many MDF experts, the spokesperson reported good order levels for January and February in which the company sold more than it made. This had eaten into the inventories built up by continuing to operate over the Christmas period. He acknowledged demand had “backed off a shade” towards the end of the first quarter and this had persisted into the start of the second quarter. However, he said price increases were not only inevitable, but probably not too far away. “We are reasonably relaxed. Market-tightening is only a matter of time.”
He said his confidence in MDF market fundamentals was underlined by a continuing flow of enquiries from “parts of the world we would not normally have heard from”, which he believed indicated tight global supply conditions. He said there was a “fairly close equilibrium” between European capac-ity of around 12.5 million m3 and regional consumption of more than 11 million m3. The gap might seem wide, he said, but many mills were not achieving capacity because of factors such as product mix.
Similar sentiment was echoed by a spokesperson for another leading domestic MDF producer. Decent sales in January and February were offset by a poor March in which orders for laminate flooring and furniture products had been particularly badly affected.
A strong start to April had gone a long way towards restoring confidence, but the spokesperson stopped short of naming a likely date for the next round of price increases. He said costs continued to go up and MDF remained an undervalued product. “It’s a case of wait and see. We could still see a price increase before the end of the second quarter – especially if April continues the way it has started.”
Although domestic producers and market optimists say no major MDF capacity will come on stream in the near term, there are still widespread fears the fine balance between demand and supply may be disturbed. One industry source said: “Perhaps history makes MDF its own worst enemy. People have been so used to getting deals in the past that they expect pressure to bring them about.”
Another industry figure believes the supply/demand balance had narrowed to such an extent that the possibility of a drop in MDF prices could not be ruled out for the foreseeable future. “Maybe we could still see a slight softening in price. I am certain the pull for the product will come in the second quarter, just as happened last year.”
Steady nerves
However, the majority of people in the industry contacted this week were reluctant to talk of a softening market and instead urged domestic producers to hold their nerve on prices or risk triggering early summer sales and a distinctly uncomfortable period for all the MDF trade.
The latest outbreak of nerves contrasted starkly with the upbeat tone adopted by the European Panel Federation in its 2004 review statement issued after its general assembly in Brussels in March. The organisation said the MDF industry had performed according to expectations last year in raising production levels by 5.7% to a record of 11.9 million m3, while the 10% increase in consumption to 11.4 million m3 had been beyond expectations. The key sales drivers were within the domestic markets while export markets had remained fairly quiet. MDF stocks had remained at historically low levels in Europe last year.
