Summary
• Orders are expected to remain reasonable over the fourth quarter.
• A price rise before the end of the year is unlikely.
• UK prices of standard MDF are lower than those in Europe.
• The shopfitting sector is one of the stronger markets for MDF.
• Medite Tricoya was launched at Timber Expo on September 28.

At the start of the fourth quarter, the uncertainty within the domestic panel markets was mirroring the indecision in the weather across the UK, so while shopkeepers in many parts spent early October debating whether to stock the shelves with barbecue sets or Christmas cards, many panel product buyers were being particularly circumspect in their purchasing activity.

So even though there is an element of satisfaction in domestic producer circles with recent MDF sales volumes, it is acknowledged that the daily diet of doom and gloom in the media has impacted negatively on buyer sentiment. Looking to the immediate future, orders were expected to remain reasonable without ever aspiring to greatness; a leading distributor, for example, said that October sales prospects were shaping up to be “decent rather than desperate”.

Preferring to focus on the upside, a spokesperson for one of the three UK manufacturers told TTJ this week: “We budgeted for a downturn over the summer but we have been pleasantly surprised by the way the market has held up.” He added that, as a result of this reasonable stability there had been no need to offer summer-time deals.

Product offers

TTJ was told that some distributors have been prepared to offer lower MDF prices and to forfeit at least part of their profit margin, possibly in a bid to win business which also contains other, more lucrative products. “Some are not consolidating MDF price increases into their own prices in a bid to shift volume,” a leading distributor agreed.

Interestingly, for those producers working in sterling, overseas sales of MDF have become a more significant part of business. Assisted by the ongoing weakness of the pound in relation to other currencies, one of these companies revealed that exports are currently accounting for some 20% of its overall sales versus, typically, between 2-5% in the past, with destinations principally “beyond Europe”. And so although the producer’s domestic sales were largely “static” in the first three quarters of 2011, the boost to export business led to an increase in total volume sales in January-September when compared with the same period last year, a company contact said.

Some Continental producers have also said that UK material had been sold at knock-down prices in mainland European – “in some cases below UK prices”, it was alleged. Meanwhile, and as has been the Case for most of the year, imports of MDF into the UK are restricted largely to “specials”.

UK?exports

According to latest Timber Trade Federation (TTF) statistics, UK exports of MDF were 27.3% higher in the first half of this year at around 85,000m³, versus 66,000m³ in the corresponding period last year. For 2010 as a whole, the UK shipped overseas some 138,000m³ of MDF. Meanwhile, UK imports of MDF edged 4.4% higher in January-June this year when compared to the same period in 2010 – rising from 316,000m³ to 330,000m³.

UK prices of standard thicknesses of MDF remain significantly below the levels prevailing in Continental Europe – despite the latest round of domestic price increases averaging 4-5% which were introduced in early September and during ensuing weeks. According to producers, the market has largely assimilated these new levels whereas some distributors claim that the process remains ongoing. Among those in the latter camp, one said: “We are still seeing offers that smack more of the older prices than of the newer ones.”

Producers say that the latest increases have been absolutely necessary to keep pace with rising costs, with timber, energy and resin identified as the main concerns. One noted: “This latest MDF price increase helps to cover the higher urea bill, but now methanol has gone up by 6 or 7%.” Another added: “Costs are still rising and our resolve [to not weaken on price] has been firm.”

One of these contacts said that MDF prices must continue to climb because “they are still financially unsustainable in the longer term”. Product values are close to matching those recorded quite a few years ago but “costs have gone up significantly in the meantime”, he added. Although his company’s sales volumes in the first nine months of this year had been slightly higher than those in the corresponding period of 2010, “the pressure on margins shouldn’t be underestimated”.

Price increases

Despite the constant cost onslaught, the most recent round of price increases in the UK could well be the last in 2011. One domestic producer was largely dismissive of the prospects of a fourth quarter hike on the grounds that “I don’t think the market can take it”. Another was slightly more circumspect when suggesting another increase in 2011 was unlikely “unless something dramatic happens in the meantime”.

The latter said an upward price move in early January was more probable whereas the former did not rule out a delay until February, adding that sentiment within the market would be a key factor in the decision-making process. However, he also underlined that his own company had no intention of running at anything other than full production in the foreseeable future, especially as its stocks of finished product are quite low at present.

The view from at least one leading distributor was unequivocal. Asked whether he felt a further hike in MDF prices was likely in 2011, he said: “I’d be absolutely gobsmacked if there were any more increases before Christmas.”

Looking at UK demand for MDF in more detail, one supplier described order levels in September as “inconsistent”, with a quiet first half followed by a significantly busier fortnight to give, overall, an average month. He said that orders from furniture and door manufacturers had been reasonably healthy, while the shopfitting sector was widely identified this week as one of the stronger outlets for MDF. “That industry seems busy at the moment,” said a domestic MDF producer. With preparations for Christmas trade already well in train, retailers are spending money on their stores after a hiatus in major investment, he added.

Construction sales

Demand for faced MDF and standard board was described as, respectively, “doing very well” and “static”, with one producer saying that sales became more difficult for the MDF sector “the closer you get to construction”. The comment coincided with news that, in September, new orders for the UK construction industry dropped for the first time in 19 months and that housebuilding continued to decline. The Markit/CIPS construction index was left hovering just above the contraction threshold at its lowest level for nine months.

Certainly, not everyone is happy with the current market conditions for MDF. One leading distributor acknowledged that “we would like to see more in the way of volume as everyone is chasing a smaller pot at the moment”. Another distribution contact said that “volume trading isn’t what it was” and that “large consumers are either not busy or not there at all”.

Although few are anticipating major changes in the MDF market over the final quarter, the period is almost certain to be enlivened by the sales launch of Medite Tricoya MDF – hailed this week by a spokesperson at Coillte Panel Products as “a very exciting prospect” that has the potential to “revolutionise the market”. Substantial interest in the acetylated MDF – which BRE tests have shown is dimensionally stable and biologically durable and has an expected service life of 60 years – has already been received from architects and others who, the company contact noted, “perhaps would not have considered using wood in some of the given applications in the past”.

Based on feedback from contacts this week, the MDF sector is certainly watching developments with a keen interest.