There was a time – only a few years ago – when talk of an early-summer price increase on raw MDF would have been universally scoffed at. Indeed, the focus of discussions in the past tended to be on whether producers were envisaging extended downtime over the summer. But although times, attitudes and approaches have changed, the fact a pricehike debate is now being had in May does not necessarily mean that there is unanimous support for such a move.
Those in the pro-increase camp pointed this week to the dearth of raw board price increases in 2014 at a time when production costs have been mounting. One UK MDF producer highlighted glue charges as a particular concern, adding that "fibre is getting difficult" and "transport costs have gone up as the UK has got busier".
The same contact believed a price increase was inevitable but that its timing had yet to be pinpointed. "We have had no price increases this year [on raw board] and there should have been one by now," he said. "There could be something before the summer kicks in but, if not, then definitely after the summer. It’s just a case of measuring order files." His own company’s lead times were currently slightly longer than the norm at around three weeks. "I’m happy with that," he said, "as it helps us to plan and lets distributors know they need to keep an eye on their orders."
With economic conditions "much stronger" and demand "not bad" for standard MDF, the company had no plans at this point to take anything other than scheduled downtime for maintenance over the summer, he said. Other suppliers and agents offered similar conclusions. "Demand is good, pressure on costs is still there and timber availability is a threat, so prices of MDF products are still well below the levels where they should be," said one. Another described MDF demand as inconsistent from month to month but generally on an upward curve. "Housebuilding is picking up and should maintain a momentum, and some MDF users are bubbling at the moment, such as kitchen manufacturers," he said. "Customers aren’t fighting for every penny any more."
But if the pressure of rising costs of chemicals, energy and timber had not already convinced MDF manufacturers to move their prices higher, one contact wondered what it would take to persuade them. "Perhaps we will need to wait until demand for MDF well exceeds production," he said. Minimal returns Prices for mid-range standard and light MDF were still too low compared with other sheet materials and offered manufacturers only a "minimal" return, he said. "The gap between chipboard and MDF is too narrow and it doesn’t make any sense to get only £15/m3 extra for MDF compared to chipboard in distribution," he said. This comparison between MDF and chipboard pricing "clearly shows that our industry can only generate a reasonable return on manufacturing through shortages in the market". Manufacturers needed to focus more on "selling and adding value to their product", he said.
There was also a suggestion this that prices of melamine-faced MDF were "at a very low level" despite "strong" demand. One industry expert described orders from shopfitters as "phenomenal" and the driver behind a significant increase in volume sales. "All shopfitters want delivery tomorrow and that offers the possibility of a good margin," he said. The same contact also highlighted a substantial increase in demand for FR MDF.
It was generally agreed too that the momentum in the housebuilding market was fuelling healthy growth in MR MDF sales, with one leading distributor pointing to a year-on-year increase of around 10% in its revenues from this source, while a producer hailed the market as "much, much busier". As regards the MDF flooring market, sales were said to be improving "but have yet to return to their peak".
On the issue of raw board, one UK MDF producer was more conservative in his assessment of the scope for price increases. Despite small signs of increased buoyancy in May, he described the company’s raw MDF sales volumes into distribution and merchanting as generally "flat" of late, with evidence of "erosion on the odd account" when it came to prices. While he too expected nothing but planned maintenance shuts in the summer, he did not anticipate any upward movement in the firm’s prices before the fourth quarter.
A distributor agreed that attempts at a price hike in the near term would likely be met with "significant resistance". While the distribution sector generally favoured price increases as a route to adding value to their stock, he suggested hikes needed to be introduced in manageable increments and with an eye to realistic timing. "It’s all very well for producers to introduce price increases, but it’s people like us who have to try to push them through," he said. "At the moment, supply is outweighing demand and I don’t think it [a price increase] would work."
At present, he added, raw MDF was a focus of "extremely fierce" competition among sellers that was hampering attempts to talk up an increase. Price levels were "ludicrous" and the deals being concluded were far from lucrative in many instances as suppliers looked to concentrate on "defending their market share", he said. "They can’t be making a lot of money – certainly on multiple packs." As an illustration, in April one company’s raw MDF sales volumes climbed 5% compared with April last year – "but the margin we achieved was 3% lower", a spokesperson said.
The MDF market was generally "more feisty" as companies "jockey for market share", creating "tougher" conditions in some regards than have been seen for some time, said one contact. "There is activity out there across the spectrum but it’s also a lot more competitive," he said. "It only takes one company to need to generate cash."
New interest in Uk Several contacts reported evidence of increased activity in the UK from an overseas MDF producer which has not been a regular in this market of late.
Covering the first two months of the year, latest figures from the Timber Trade Federation (TTF) showed a 22.4% surge in UK imports of MDF to 117,000m³ from 95,000m³ in January-February last year. But while imports were higher this January than in any month during 2013, incoming volumes in February fell to last year’s monthly average. While imports were rising, UK exports of MDF were falling in almost the same proportion, according to the TTF stats.
However, the year-on-year decline of 25.6% in this year’s January-February period to 19,000m³ masked the fact that overseas shipments in February of 12,000m3 represented the highest tally since June 2013. Speaking this week, a leading domestic producer alluded to renewed signs of growth in MDF export opportunities. Meanwhile, a prominent importer’s take on latest talk of the potential for an MDF price increase was effectively "bring it on", given that higher prices in the UK market would open the door a little wider to the possibility of increased import activity. Currency movements and the relatively low levels of MDF demand on mainland Europe were also pushing in this same direction, he added.
Looking ahead in 2014, the consensus among industry experts appears to be that, at worst, UK demand for MDF will maintain its momentum, and possibly improve as the year progresses. "I expect a stronger second half because construction projects will start to kick off and housebuilding will continue to grow," said a producer. "There is more confidence too on the high street."
