The latest sequence of price changes began at the start of March when one of the big three manufacturers announced that a 5% energy surcharge introduced at the beginning of December was being converted into a permanent increase. The same company pushed up its prices by around 5% in January and is now planning to implement a further increase, probably with effect from the second week of April.
Indicating that the increase will average out at around 6%, a senior spokesperson for the company insisted that gas prices were by far the main factor in the decision to raise prices in April. Since November last year, these costs had fluctuated wildly from 30-40p per therm to well over £2 per therm, he said; in the space of one week, prices had jumped from 56p to £2.50 per therm before falling back again. “Gas prices have gone completely crazy – we can’t budget any more,” he said.
While accepting that gas costs were likely to drop in the warmer months to come, he added: “I don’t see them coming down to the levels of previous years.”
All products under review
Another manufacturer confirmed in mid-March that its mainstream MDF prices were to be raised by between 7-8%, with MR prices being increased by “up to 7%”. A senior spokesperson said that some products – including exterior, FR and flooring qualities of MDF – had not been moved as part of this latest round of price increases, before point out that all were under review in the light of rising costs. He agreed that reduced availability was likely to smooth out the traditional trough in summer energy prices. There was also a warning this week that resin costs may rise by a further 5 or 6% during the second and third quarters of 2006.
According to one source, the market place had generally accepted “the direction in which the wind is blowing” with regard to MDF prices. A couple of manufacturers welcomed the support they had received to date following their latest price announcements. Another contact added: “There is always scepticism that we are profiteering, but none of us is making any money.”
On the plus side for manufacturers, demand is widely claimed to be better than for some time. One leading manufacturer has seen its lead time move out to around 14 days while another was “comfortable” with his lead time of around one week. “Stocks are good enough to get us through to Easter with the orders I have,” he said.
One manufacturer welcomed the fact that activity levels have undergone a gradual improvement rather than conforming to the all-too-regular “boom and bust” pattern.
Norbord restructuring
That said, a continuing decline in the UK furniture manufacturing industry, as well as massive increases in energy and resin costs over the past two years, have been key factors in prompting a restructuring of Norbord’s MDF operation at Cowie. The company confirmed towards the end of March that it would be decommissioning its 20-year-old MDF2 press line and transferring capacity to the MDF3 continuous press line brought on stream in 2000. Now producing at “over 120% of its original design capacity”, the MDF3 line is scheduled to see a further 10% upturn in its capacity over the next 12-18 months and so, explained Norbord, “we are now in a position to retire our MDF2 facility”. Total MDF output will decline by around 20% in the short term before rising again to around 90% of present capacity by late 2007. “The short-term reductions will be mainly to offshore markets,” the company added.
As has been widely reported, UK furniture manufacturers – and by extension, domestic MDF producers – have been hit by competition from eastern Europe and the Far East. Other blue-chip MDF consumers are also under pressure; for example, flat-pack giant MFI is to close stores and narrow its product range in a bid to turn round its ailing fortunes. Furthermore, construction activity is more muted than many had expected at this time of year, while the shopfitting sector has also reported lay-offs as well as closures. Indeed, several prominent MDF players expressed concern this week about the difficulties encountered by many of their leading customers, and about the steady erosion of the UK’s manufacturing and consumption base.
Nevertheless, statistics from the European Panel Federation (EPF) support the contention that supply and demand are coming very much closer together. At the European level, MDF consumption mopped up 72% of capacity in 1997 and was absorbing 80% two years later; by last year, the figure had risen to 91% and current estimates suggest 94% may be achieved in 2006. “That’s very, very tight and we are beginning to see shortages appear in the market,” said an industry expert.
So are longer-term prospects sufficiently encouraging to warrant consideration of new MDF capacity? From drawing board to start-up, new production projects can take two to three years and so, in light of current market conditions, “it’s a fairly bold man who would look to invest in new capacity right now”, TTJ was told.
At present, the perceived lack of MDF availability appears to be most pronounced among Continental European manufacturers and among the regular 6-25mm merchant sizes. “There’s no such thing as ex-stock any more – those days are gone,” a spokesperson for a mainland European producer said this week. Against this backdrop, only relatively small quantities of MDF are being exported to the UK from Continental Europe because producers are grappling with healthy demand closer to home.
It should also be said that, despite the latest round of price increases, the UK remains a comparatively unattractive market for Continental exporters. Taking the more global perspective, some exporters are opting to focus on the buoyant US market where MDF prices have risen by up to 25% in the first quarter of 2006. One of the overseas manufacturers to have capitalised on this strong US demand reckoned UK prices would have to increase by a further 10-15% to make this market a viable proposition.
Meanwhile, a statement issued after the EPF’s recent general assembly confirmed that Europe’s exports of MDF maintained their growth curve throughout last year. The EPF observed: “An increasing amount of European MDF had eastern Europe, North America and Africa as its destination. Home sales, on the other hand, seem to have been shrinking.”
Promising end to 2005
According to EPF, feedback from MDF producers suggested that 2005 ended on a more promising note after a weak third quarter. However, the increasing cost of timber, energy, resin and transport remained a focus of concern throughout the panel sector, said the organisation. European output of MDF is thought to have exceeded 13 million m3 last year – an increase of around 3% over the previous year.
Norbord’s restructuring of its Cowie operation is one of several major developments to have occurred in the MDF sector since our previous report. As noted recently, Sonae Indústria has agreed to purchase the companies of the Hornitex Group located in Horn-Bad Meinberg, Duisburg and Beeskow. If approved by the competition authorities, the deal concludes the sale of companies whose activities have been continued by the insolvency trustee for the last four years.