Summary
• Prices have softened and lead times are prompt.
• Sales into the merchant sector have generally weakened.
• Manufacturers’ costs have risen by as much as 30% since the autumn.
• European producers have been selling into the UK because of lack of demand in their domestic markets.
MDF prices have softened and lead times among the domestic manufacturers are prompt following a significant downturn in demand during the first quarter and, as a consequence, a build-up of producer inventories. And there is a strong sense that conditions must improve if domestic manufacturers are not to give serious consideration to the option of production downtime.
Gloomy economic headlines have continued to sap the confidence of customers in a wide range of sectors, with the result that overall MDF purchasing levels are well down on this time last year. A major home producer of MDF confirmed that, in pure volume terms, sales in the first quarter were 30% lower than in the corresponding period of 2007. Another claimed a precise comparison had been rendered impossible by the fact that the Easter holiday period fell in March this year rather than in April. At the same time, however, he acknowledged that buying activity was lower in the first three months of this year.
Meanwhile, a major MDF distributor said demand was around 10% lower than at the same stage of 2007, while another put the deficit at nearer 5% and also noted a firmer tone to trading in early April.
Sales levels
Sales of certain forms of MDF – for example, laminate flooring, faced material and skirtings – appear to be holding up relatively well. However, sales into the merchant sector have generally weakened and strong pressure has been felt in the raw MDF sector and particularly in lightweight MDF. “The market is particularly flat at the moment,” TTJ was told. “Confidence is lower and less work is being committed to.”
Lightweight MDF attracted a premium over standard board when it first appeared on the market, partly because the greater resin-to-wood loading entailed higher production costs. However, the reverse is now true and the gap has widened over recent weeks as lightweight prices have softened to a greater extent than those of standard board. According to a senior producer figure, lightweight MDF prices have suffered reductions of, typically, 5-7% in recent times.
Not least because of the attractive prices on offer, lightweight material has considerably increased its share of total MDF sales in the UK. However, there is concern that some of the lightweight MDF being sold into the merchant sector is ultimately being used in applications where it is not fit for purpose. “Customers are buying on price but are then finding they are getting material that doesn’t meet their needs,” one contact told TTJ. “Ultimately, this will damage the MDF industry as a whole because users aren’t necessarily getting what they expect or what they need.”
A vigorous defence of lightweight MDF was mounted in other quarters. One producer argued: “Lightweight is becoming so popular, and if it wasn’t fit for purpose we wouldn’t be able to sell it. We have had no complaints from end users.”
Against this backdrop, Coillte Panel Products, which manufactures Medite Premier, confirmed this week that it would be launching a promotional campaign in early April aimed at underlining the distinction between their own product and lightweight MDF.
Maintaining value
According to manufacturers, there remains a desire throughout the supply chain to maintain the value of standard MDF, especially in the light of rising costs. According to a spokesperson for one of the leading domestic manufacturers, increases across timber, chemicals and energy have added around 30% to the company’s costs since the autumn of last year. To make matters worse, he added, gas price reductions had been anticipated for this summer but these hopes have since been dashed.
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“We are not going to panic. But more and more, manufacturers are inclined to reduce supply rather than sell at a loss” |
“Nobody wants a slide in standard MDF prices,” TTJ was told by a leading manufacturer. “Distributors do not want their stocks devalued.” And, he added, there was a recognition that “lower prices do not give you more volume – this market hasn’t got more volume at the moment.” Another producer acknowledged: “The industry is in the worst possible shape to lower prices. I would hope that common sense would prevail and that we would see no further price weakness.”
One of the leading domestic manufacturers conceded that an improvement in demand was required if downtime was not to emerge as a strong option. A senior spokesman offered the following succinct explanation: “I have my maximum stocks and if I reach that point, I stop [production].”
Another of the home producers acknow-ledged that downtime has been taken recently by Continental MDF producers and that this option, if not on the front burner, could be used as a “last resort” to rebalance the market. A spokesperson for the other domestic MDF manufacturer offered a similar viewpoint: “We are not going to panic. But more and more, manufacturers are inclined to reduce supply rather than sell at a loss. We are not considering taking downtime at the moment because volumes are not that bad. But downtime is part of the production equation for panel producers throughout Europe.”
Despite the strength of the euro in relation to the pound, some Continental producers – notably in Germany and Spain – have still been offering MDF into the UK owing to the dearth of sales opportunities in their home markets. However, according to a domestic producer, there are already signs that this influx of imported board is “drying up” as a result of currency pressures and higher transport costs. “I can’t see Continental manufacturers being able to continue sending in discounted product,” said a leading distributor.
Asian product
Some contacts also said this week that competitively-priced Asian production has entered the UK of late, with the rider that this material was not of Chinese origin. “Asian factories are eyeing up other markets because the US market is disappearing rapidly and others, including Japan, are not performing very well,” a source said. “We are now getting offers daily from all around the globe.”
While nobody within the domestic MDF sector is attempting to paint a rosy picture of current market conditions, at least one of the home manufacturers is adopting a positive outlook. “I am quite hopeful,” a spokesperson said, “that the UK, Europe and the US will be forced to act to reflate their economies and that we could see a recovery in the short to medium term.” Another senior producer noted: “This year is similar to 2005 in that the year started slowly and Easter fell in March. Then, every month saw a slight improvement. 2008 could follow that pattern. I don’t expect big swings but perhaps a modest recovery.”
And sounding another positive note, a major distributor pointed out that the balance between supply and demand in the domestic MDF sector remains “very fine”, not least because of the lack of new capacity brought on stream in recent years. Therefore, he argued, even a relatively small improvement in demand could provide significant relief.
Leading distributors echoed the sentiments of manufacturers in hoping that the current price softness does not deepen and further undermine the value of their stocks. While acknowledging that a general drop in consumer confidence has served to depress the market, some companies in the distribution chain are apportioning some of the blame for current conditions to domestic MDF manufacturers “putting up prices too quickly last year”.
As a footnote, industry experts have described as “an interesting development” the emergence of a laser technology that gives standard MDF a wood grain effect. The etching process was devised by researchers at Warwick University with backing from timber industry companies and organisations.
“There could be customers out there who want a product with more character, so this can only widen the appeal of MDF,” said one senior industry figure. “Other people, however, like MDF precisely because it offers them a blank canvas.” Several sources expressed misgivings over the potential cost of installing the laser technology on a commercial-scale production line.
