Summary
• Customers are keeping stock levels low.
• Price increases have been implemented in the second quarter.
• Producers’ costs continue to rise.
• Demand from the shopfitting sector remains strong.
• Import volumes to the UK are still low.
Although nobody is hanging out the bunting, it could equally be said that rumours of the demise of industrial activity in the UK have been greatly exaggerated, particularly with regard to panel production.
Amid the barrage of negative news surrounding the eurozone crisis and its likely impact on this country, buyers are continuing to be found within the domestic MDF sector – even if the volumes being moved are not as healthy as some might like. And to generally positive acclaim, the price softness noted in TTJ’s previous MDF report has been superseded by a number of increases during the second quarter.
That said, a senior spokesperson for one of the three UK producers described the market as “challenging”. “Demand is down and people are watching every penny they’re spending. They are keeping their stock levels particularly low and I would expect this to continue for the foreseeable future,” he said.
No market-related downtime had been taken by his company “as yet”, he said, although this option was not being ruled out; he termed production curtailments as “the natural adjuster” and preferable to selling at a loss. And he added: “We will take time out as normal for annual maintenance in the summer, but whether that’s going to be sufficient, I don’t know. It’s a very, very volatile market – we don’t know what’s going to happen tomorrow, let alone in the coming weeks and months.”
Stock levels
Another leading UK producer figure also said that his business would not be prepared to produce MDF at a loss, and that the preference was for production rather than price cuts if necessary. But he also insisted: “We don’t need to take downtime at the moment.” The production facility was fully occupied at present and “I would like to make more”, he went on to say, adding that stock levels are currently “manageable”. In addition to the planned maintenance downtime taken in the spring, the company would be carrying out further routine – and planned – maintenance in August. But the spokesperson argued that, given the current position, he would like the forthcoming downtime period to be made “shorter rather than longer” if possible.
As reported previously, upward price momentum in the domestic MDF market stalled somewhat in the first quarter. In its latest financial results package covering the first three months of 2012, Norbord reported that average European panel prices softened slightly compared with the previous quarter but remained higher than in the corresponding period last year. In the case of MDF, quarter-over-quarter prices had been “flat” whereas the increase over January-March 2011 averaged out at 11%, it said.
However, the second quarter kicked off with a return to higher pricing. One of the producers to have implemented a price hike said the move had met with little resistance from customers but that the increase had not retrieved all of the ground lost during the earlier price softness.
“I don’t see more price increases in the short term,” a spokesperson said. He identified September as perhaps the next realistic opportunity for an increase unless mounting costs forced producers to act before then.
A senior spokesperson for one of the other domestic producers confirmed that his business has added 4-5% to its standard MDF pricing in the second quarter without encountering any significant opposition from buyers; price increases in other segments of its MDF business were also under consideration, he noted.
He also stressed that the most recent round of price increases had not totally offset the cumulative effect of cost hikes. On the issue of direct costs, TTJ was told this week that urea prices alone have leapt 45% year on year, while methanol and gas bills have escalated by 11% and 8% respectively over the same period. Timber costs have increased by around 10% since the same point last year.
Further price increases
One domestic producer underlined this week that further MDF price increases could not be ruled out for some point during the summer months and that cost pressures would be a key determining factor. Recalling that the mid-year holiday period had often been characterised in the past by deals on MDF, he said: “The summer is not like it used to be.” If a summer price increase were to be introduced, he added, it was “more likely” to happen in August or September.
A leading distributor echoed the view that buyers have largely accepted – and in some cases, embraced – the recent price increases.
“It took some of the nervousness out of the market,” he said. “It sent some good signals out about the intention to get prices up.” Asked about the possibility of further MDF producer price increases later in the summer, he said: “I would be in favour because it would put more value back in – so long as the producers don’t lose their nerve as soon as Christmas looms.” He added to his largely upbeat assessment of the MDF market by noting that his own company, whose sales are exclusively to UK customers, have improved by 7-8% year on year.
One producer described the current raw board market as “steady but not exciting” whereas the MR MDF sales continue to be relatively strong. As for faced MDF, the second quarter has brought relatively healthy demand – a reflection at least in part, he argued, of leading retailers committing themselves to major store refurbishment programmes despite the proliferation of negative economic news. Across the entire MDF product range, he estimated that company sales volumes have increased by around 5% in 2012 when compared with the same early months of 2011. “We are not too unhappy about our business levels so far this year,” he said in summary.
Unprompted, several other contacts identified shopfitting as particularly fertile territory for MDF sales at present.
Euro matters
In common with those in all other areas of business, the MDF sector is adopting a very careful watching brief with regard to the euro. “It’s acting as a bit of a downer in the market,” said one contact. It was also acknowledged this week that the dramatic recent decline in the value of the euro in relation to the pound effectively altered the competitive position of euro-based producers with regard to the UK and other markets outside of the eurozone.
However, some experts contacted this week argued that the recent swing in the pound/euro exchange rate had barely altered the flows of MDF coming into the UK. “From Europe, we are still seeing generally only the speciality sizes, thicknesses and grades,” said one. “I haven’t seen any sign of a change,” agreed a leading distributor, who added that the additional uncertainty surrounding exchange rate movements may have convinced some buyers to steer clear of the import route.
Meanwhile, the UK’s MDF export volumes have continued to outstrip those recorded in previous years, with one domestic producer noting that, despite the much-publicised economic and financial crisis, some areas of Europe continue to perform well in business terms and therefore remain open to MDF imports. The same applied to some regions a little beyond Europe, he added.
Latest statistics from the Timber Trade Federation reveal that MDF exports soared almost 40% from 28,000m³ in the opening two months of last year to 39,000m³ in the same period of 2012.
Imports, in stark contrast, declined by 17.8% in the first two months of this year, with the total sliding from 106,000m³ in January-February 2011 to 87,000m³ this time round. For 2011 as a whole, MDF imports totalled 611,000m³ and exports 166,000m³.
