Further UK price rises expected

The underlying strength of the domestic MDF market is reflected in the fact that the three leading domestic producers not only continued running their lines over the festive season, but also chose to introduce significant price increases around what has often been a nervous period for the trade in the past. "Manufacturers are being fairly bullish and none is prepared to do deals," TTJ was told this week.

By continuing to produce during a holiday season when no selling takes place, MDF manufacturers were able to build up their stocks. Lead times duly shrank but were expected to lengthen quite quickly once demand regained momentum. Indeed, enquiry levels during the first full working week of 2005 matched or exceeded expectations in most instances, thereby giving cause for widespread optimism.

"The signs are still good," a senior producer told TTJ. "Our lead time is 7-10 days, but if the market continues as it did in the fourth quarter of last year, then lead times will go out significantly."

Another leading MDF manufacturer said that his company was "relaxed" about current lead times, but warned that the market could get "extremely tight" in 2005. "Demand has been going up steadily and I think the lack of investment [in new MDF capacity] will really start to bite this year," he said.

Price rises

The latest round of price increases were of the order of 5-6%, although there were some variations between the individual producers. One of the main domestic manufacturers said his company's prices had been raised by around 5% "across the board" and that the majority of customers had accepted these new levels almost without debate. Another producer spokesperson said that his prices had gone up in general by some 6%; at the same time, however, he pointed to the introduction of a "double digit" increase on MR products and also to "a big increase in sales prices into the mouldings sector from a very low base". After a period of "very competitive" pricing, he said, producers of MDF moulded products such as skirtings and architraves would now have to look for significant price increases from their own customer base.

The other leading domestic MDF producer said that its standard, MR and light product prices had increased by some 5%. Noting that "most of our orders in December were at the new prices", a senior spokesperson said: "We ended last year with an enormous order file, which was a bit of a surprise. Order processing in December was exceedingly high." Purchasing activity in the early days of January had been muted but a rapid return to pre-Christmas demand was to be anticipated, he added.

On the subject of MR, many industry experts believe that these products have been under-priced for some considerable time given, for example, the rising costs of some of the raw materials used in their production. One industry figure observed this week: "It wouldn't be an exaggeration to say that some of the keener sellers of MR products should still be considering 15-20% price increases."

Laminate flooring

While buyers in the UK furniture industry and joinery sectors appeared to make a reasonably slow return after the holiday period, the laminate flooring market was described this week as "very busy". A leading flooring supplier said that prices had been increased and that, given the increased maturity and stability of this MDF market segment, efforts would be made this year to widen the company's offer to other flooring products.

The UK is certainly not alone in experiencing strong MDF fundamentals: for example, supply is said to be tight across many parts of Europe. The key German market for MDF is understood to be "a lot busier than it was", although confidence in the country's overall economic prospects has been dented recently by another poor set of unemployment figures. On the news front, towards the end of last year Pfleiderer completed the acquisition of one of the MDF factories previously operated by Hornitex, leaving the latter group with only one MDF production unit.

During 2004 the UK market was stirred up by imports of MDF from non-traditional sources. However, virtually the only imports coming into the UK at present are from companies that can boast a long-established presence in this market. In general, it would appear that other overseas producers are too busy responding to the elevated levels of demand in their own countries or regions to consider exports into what many overseas sellers still regard as a relatively low-priced market. The UK-based agent for one foreign producer said: "They [at the factory] have told us that they haven't got any production available – their own home market is busy and the more local export markets are absorbing any surplus. In any case, those overseas producers with spare capacity still don't like UK prices."

By the same token, the scope for UK exports has been reduced by the strength of demand in this country and by the additional transport costs entailed by shipping material abroad. That said, one of the leading domestic producers confirmed "an increasing number of enquiries from markets that would previously have expected to pick up their material elsewhere with ease", thus indicating that many traditional channels of supply have been disrupted by the increase in global demand and the lack of investment in new production capacity.

The MDF market has been recording steady progress for some time. A report released following the general assembly of the European Panel Federation (EPF) late last year confirmed that the foundations for a relatively successful 2004 were already being laid in the first half of the year. It was confirmed that MDF production had been around 5% higher in the first half of 2004 compared to the same period of 2003, and that growth appeared to have been maintained in the final six months of last year. Members' domestic sales were identified as the main drivers behind this improvement, registering two-digit growth over the six-month period. But despite a pick-up in exports during the second quarter of last year, growth over the first half of 2004 as a whole was a "rather weak" 2%, according to the EPF. Also in the first six months of last year, MDF stocks as a percentage of production continued to fall and reached their lowest level since the end of 1998.

Building confidence

Strengthening demand, the lack of new capacity coming on stream, and consistently rising prices have certainly helped to build confidence across the entire UK market. However, producers are quick to underline that further upward price development is required. "Profitability has barely returned to the industry," said one domestic producer, "and some operators in Europe are still losing money."

Leading MDF distributors are happy about the sustained price recovery, although many say that increases must be introduced steadily. While acknowledging that the leading producers had behaved "quite sensibly" over the last year or so, one distributor said: "Distributors have to persuade dozens of people to accept increases and so we find it hard to get them implemented immediately. We therefore prefer a gap of at least a couple of months between increases."

As to when domestic producers will look to introduce the next round of increases, much will depend on the intensity of the post-Christmas market pick-up, and therefore the speed with which producer inventories built during the festive season are eroded. With rising raw material, energy and transport costs helping to underpin price firmness, one producer said: "We will probably see another MDF price rise in the second quarter, but it could happen much sooner than that."