There had been hopes within the domestic producer sector that the MDF market may be about to “turn the corner”. For the moment, however, lead times remain “prompt” and order levels “unspectacular” in the midst of a summer that, to almost unanimous agreement, has been “very flat” in demand terms.

This week, most distributors were reporting no real signs that an upturn in MDF demand may be imminent. Many of them appear to have more than adequate stocks and have been resorting to cashback deals, rebates and other similar moves to shift material. One told TTJ: “We would need to see a significant increase in demand during the second half of August – otherwise it could be a long late summer and autumn.” The point-of-sale and shopfitting sectors were particularly quiet, he said.

A leading domestic MDF producer said that, from his own company’s perspective, the summer had been “within our expectations of a downturn period”. He added: “The summer has held no surprises for us and, to date, we have managed our way through it. Demand has been generally steady without setting the world on fire. Business is not sufficient but there has still been a regular inflow.” An obvious exception is the UK furniture industry which continues to see demand severely damaged by imports from eastern Europe and South-east Asia in particular.

While the newspapers were writing about gloomier economic forecasts and difficulties on the high street, the recent decision by the Bank of England to cut interest rates provided some cheer. “I would have preferred more than 0.25% – but at least it’s a move in the right direction and I hope they will go down further,” said one MDF producer.

Speciality products

According to the manufacturing sector, speciality MDF products, such as MR, FR and veneered, have remained relatively stable over the summer both in terms of price and demand, although several other contacts were complaining that MR appeared to have lost much of its premium product status and that MDF light – which appears increasingly to be taking market share from standard board – has been experiencing price pressure. According to one veneered MDF specialist, by contrast, domestic sales opportunities have improved now that the main summer holiday period has arrived in Spain, a country which is a big supplier to UK.

As for standard MDF, a producer spokesperson acknowledged that there had been “an erosion of price” during early summer, although one said that the price had kept its level over the last month or so. He hoped that this stability could be maintained throughout the remainder of August and that September would bring an improvement in market conditions once customers began to return to some sort of post-holiday normality. He said: “There has been enough impetus in the market to suggest that September could be quite a bit busier than August.” If the market were to establish a bullish tone over the next few weeks then the possibility of an MDF price increase before the end of the third quarter could not be ruled out, he added.

Higher prices needed

&#8220Demand has been generally steady without setting the world on fire. Business is not sufficient but there has still been a regular inflow”

Producers were keen to emphasise the need for higher prices to offset the constant stream of cost increases: for example, the steep rise in oil costs has had a significant impact on any product with a petrochemical base, including the resins used by the MDF sector. In fact, some in the MDF trade have said that the imposition of an oil surcharge has been discussed in some quarters.

Two factors which have helped prevent a more serious decline in the MDF market over the summer months are: the lack of board imports from overseas producers, other than those with an established presence in the UK market; and downtime taken by the leading domestic manufacturers. A producer spokesperson confirmed to TTJ this week that one of the company’s lines had been stopped for a week in July and that the other was due to shut for a similar period in mid-August. He insisted that, in both cases, the stops were purely for “scheduled preventative maintenance” and were not connected to the current state of business. “No more downtime is planned,” he underlined.
Some additional solace for the MDF sector can be gleaned from a longer-view assessment of the market. Statistics in the European Panel Federation‘s (EPF) 2004/05 annual report suggest that UK production capacity will remain at 870,000m3 this year – the same level on which it ended both 2003 and 2004. UK exports fell by more than 30% but domestic sales climbed 13% in 2004 to push UK consumption up to 1.2 million m3, with a further 4% rise expected in 2005. One domestic producer acknowledged that year-on-year growth was likely to slow this year but that a lack of new capacity in the UK meant that the supply/demand balance remained close. “We are not too far away from the point where the market could go the other way,” he said. “I am still confident about that.”

In terms of MDF production capacity across Europe, EPF statistics reveal that 2004 ended with the total on 14.2 million m3 compared to 12.8 million m3 one year earlier. Capacity expansions in Germany and Romania would play a major part in pushing up the Europe-wide production total to 14.5 million m3 by the end of 2005, according to The Federation.

Production record

MDF production increased by 5.7% up to a new record of 11.9 million m3, according to the EPF annual report. Total demand increased by 10% to 11.4 million m3, driven once more by strong growth in the laminate flooring market which accounted for more than 40% of all MDF sales. For 2005, MDF consumption in Europe is expected to grow by a more restrained 4.3% to around 11.88 million m3, with demand from leading consumer Germany expected to break through the 3 million m3 barrier for the first time. Indeed, Germany was the only European country to consume more MDF than the UK in 2004; its total of 2.9 million m3 equated to around a quarter of total European demand.
MDF production in Europe has grown at an average annual rate of around 13% over the past decade, although EPF points out that the strongest improvements were registered between 1996 and the year 2000 when yearly growth peaked at around 27%. In 2004, UK producers raised their output by around 5% to claim sixth place in the European production league with a 7.4% market share.

UK imports of MDF remained generally low during the summer months but, as indicated in our previous report, a small volume of veneered MDF from China is scheduled to arrive in the UK next month. A spokesperson for the company responsible for bringing the material into the country said sample packs had been “very well received” and that the product was competitive in quality terms with most of the alternatives available on the European market.

Meanwhile, as noted in our recent chipboard report, Pfleiderer AG is to take over the engineered wood activities of the Kunz Group in Germany, Canada and the US. As part of the transaction, Pfleiderer gains a minority share in the MDF plant in Baruth previously held by the Classen Group; the facility produces around 450,000m3 of MDF/HDF per year. Meanwhile, the Kunz Group is represented in North America through its 100% affiliate Uniboard Canada Inc, which is a producer of MDF as well as raw chipboard, laminated flooring and other surface-finished products.