Manufacturers encouraged to take a break

Not for the first time – and probably not for the last – the ‘big three’ UK manufacturers of MDF have been urged to take some downtime in the summer rather than maintain production at normal levels. These earnest entreaties have grown in volume this summer because of the effects on MDF demand of a generally worsening economic picture.

While everybody is keen to avoid talking down the market, the summer is indisputably a period of slacker demand, during which any existing market difficulties become magnified. One experienced trader stated this week: ‘If manufacturers would stop producing for a couple of weeks in the summer – like they do on the Continent – then we wouldn’t have this annual crash in prices and it would also help the stock situation. A lot of the MDF consuming industries close for a period in the summer, with the result that there is a big pile-up of board because there is nowhere for it to go.’

Some buyers had been snapping up material at low prices to lay down as stock in the reasonably certain knowledge that prices would improve later in the year, he said. But for the time being, he argued: ‘There isn’t a market. In the summer, people should go away, relax and forget about business.’

Element of panic

Alluding to an element of ‘panic’ in the market place, he contended that prices had been forced down in some cases by 16% since the end of June – although this figure is disputed in other quarters. Another contact suggested that prices were generally reasonably stable and that ‘the bit of scrapping’ taking place was ‘not consumer led’, while the view from another source was that the impact of summer on prices had been relatively small.

The latter still supported the idea of manufacturers taking some downtime in the summer. Noting that ‘holidays are getting harder and harder to manage’, he hailed the holiday shutdowns in some areas of the Continent as ‘enlightened thinking’ but suspected this approach was unlikely to become favoured in the UK.

The largest reductions have been felt, it has been widely confirmed, in the 6-25mm thickness merchant range, while prices for thin MDF have been relatively unaffected.

Short lead times

In the previous MDF market report (TTJ June 23), the complaint was that manufacturers had no chance of achieving price increases so long as they operated on lead times as short as 48 hours. Asked whether there had been any change in lead times since then, one contact described them as not so much two days as ‘yesterday’.

A senior spokesperson for one of the major domestic MDF producers acknowledged that standard board had fallen by as much as 15 or 16% over recent weeks. Value-added lines such as laminate flooring and melamine faced material had also been hit by price pressure, albeit to a lesser extent. He underlined, however, that price levels had not plummeted to the lows seen in the summer of 1999, that volumes were ‘not really that disappointing’, and that his own company had succeeded in taking advantage of ‘one or two export opportunities’.

The same contact insisted that there were ‘one or two signs of life out there for the autumn’. He ventured: ‘I’m a lot more confident than I was a few weeks ago. I don’t think any of the manufacturers want these sorts of deals to last very much longer. We want to get back to pre-summer [price] levels by mid-September at the latest.’

He recognised that manufacturers had large inventories and dealers were exploiting this by holding off on ordering until the last moment. But there had been ‘a lot of weak selling’ elsewhere in the market, he said.

Asked whether there was any truth in the suggestion of ‘strategic downtime’ being taken in the domestic MDF production sector, he said: ‘We have not been as focused as usual on plant utilisation.’

Another domestic manufacturer acknowledged that the MDF market was ‘a little crowded at the moment’ and that prices were highly competitive as a result, but he said the market was ‘always a little soft at this time of the year’. There were some price reductions taking place but the longer term trend for MDF must remain upward, he insisted.

The sense of nervousness which pervaded the MDF sector early summer has continued, with few contacts adopting an upbeat position on the market. One source said that, by now, there were normally indications of how MDF demand would perform later in the second half but no clear signals had yet been picked up and the lack of information had heightened worries.

Production records

European Panel Federation president Frans de Cock summed up the general feeling at his organisation’s fourth AGM held recently in Edinburgh (TTJ July 14). While MDF production records had tumbled in 2000, this year was proving to be a more difficult proposition for most of the industry’s leading operators.

Mr de Cock pointed to a 17% jump in MDF sales in Europe last year as well as to a doubling of exports beyond Europe. Production in Europe reached a record 9 million m3 and Mr de Cock predicted a further 15% rise in MDF production capacity before the end of next year.

However, he also acknowledged that an adjustment in MDF production had begun to take place as early as the fourth quarter of last year in response to the economic downturn and weakening demand. At the same time, the panel industry was confronted with a rise in production costs as a result of increasing oil prices.

Oil price hike

‘The costs of resins, paper and energy suffered in particular from the oil price hike and increased by 20-50%,’ said Mr de Cock.

He concurred with the views of the domestic manufacturer quoted above in stating that the industry’s problems were ‘short term’ and that ‘versatile’ MDF had an excellent future.

The EPF president went on to predict an insubstantial increase in wood based panel demand from the furniture industry over the next few years but improved opportunities within the construction sector. He also drew attention to the growth in the MDF laminate flooring market, with European production leaping from 80 million m2 in 1996 to 270 million m² last year to achieve 81% global share.

Europe has also driven for increasing laminate flooring consumption with its annual growth rate averaging around 38% since 1990 and with a further increase of some 22% anticipated this year to take the total through the 300 million m² barrier for the first time, according to the EPF. Consumption growth in North America and Asia is expected to be about 19% and 43% respectively this year.

The federation points to the introduction of standard EN 13329 ‘Laminate floor coverings – specifications, requirements and test methods’ as a key development in improving the product’s image. It adds: ‘As laminate flooring as such was introduced in Europe some 10 years ago, today’s second generation of laminate flooring products offers real opportunities for replacement of earlier versions, given its enhanced performance, adhesive free installation, improved substrate panels and noise reduction.’

The EPF annual report suggests demand for MDF should remain vigorous during 2001 and that production for the year as a whole is likely to exceed 10 million m³. The document puts European MDF production capacity at 10.56 million m³ for 2001 compared with 10.44 million m³last year.

Production capacity

The UK production capacity figure is given as 850,000m3 for both years while consumption is put at 1 million m3. The only European country expected to increase its capacity this year was Spain.

The MDF mouldings sector has also been affected by the summer downturn in demand. According to one leading MDF mouldings manufacturer, July proved to be highly encouraging in terms of order intake but, he said, this could be explained largely by customers buying in advance of going on holiday to guarantee their supplies.

This interpretation was supported, he added, by the fact that the flow of new business had been somewhat slower in the early weeks of August.

He anticipated a pick-up in trade during September and October, but was less optimistic about prospects for the end of the year given the ominous noises from several leading MDF moulding consumers.

He expressed a measure of disbelief that some producers of MDF mouldings were talking of investing in new capacity at a time when existing capacity was not fully used and when order prospects were not at their brightest.

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