• UK producers expect to raise prices again in spring.
• The biggest increase is in the price of timber.
• There has been some increase in demand for MDF.
• Import volumes are still low.

In common with the market situation for other panel products, the immediate course of MDF prices would appear to be steadfastly upwards. After a stuttering, weather-hit start to 2010 for sales, demand now appears to be closer to the levels that had been anticipated for the new year. However, production costs rather than order levels have been the prime motivating factor for manufacturers to seek further increases.

Certainly, the majority of distributors and end users appear to understand the need to restore value to the product. “Manufacturers are not making any money,” said one producer. “We are telling our customers that if they don’t accept reasonable price increases now, mills will close down and ultimately they could be paying a lot more.” Several leading distributors agreed that customers must prepare themselves for ever-higher prices this year.

Price surges of up to 15% are understood to have occurred in parts of Europe from the fourth quarter of 2009. A spokesperson for one of the three UK MDF producers said that his company had raised its raw board and MR prices by around 5% at the start of the first full week of January. And he warned that a further increase of similar proportions could be introduced as early as March in response to reasonable levels of business and to ever more intense cost pressure.

Leap in timber costs

Recently, the company has been paying more for its resin and for winter-rate energy, but the biggest headache has been the dramatic leap in timber costs sparked by the snowfalls in December and January. A lack of wood availability has forced the firm to buy a more expensive mix and also to commit several months forward in order to guarantee supply. In percentage terms, the price increase on timber has been “way into double-digit figures”, the spokesperson added.

He also said that the company had ditched earlier plans to take downtime over the Christmas period “because we were optimistic for the first quarter” and because stocks of finished product had dropped below satisfactory levels for ensuring an appropriate service. The inventory is now “back to where I want it” with no lead time on stock items, he said.

The possibility of a further MDF price increase in March has caused some consternation. “We are all in favour of price increases – as long as they stick,” said a leading distributor. “Increases can take six to eight weeks for us to implement with our customers, so I feel that March is perhaps a month too early.” He also highlighted the existence of some “silly” prices within the raw board market owing to strong competition between certain distributors. “These offers are barely covering replacement costs,” he said.

Another of the domestic producers also implemented a January price increase of around 5% on standard and MR MDF. “This was established very quickly and has stuck,” a senior spokesperson said. However, he added that the next hike would not be attempted before April. “There is every indication that a further price increase may be possible as we start the second quarter. Ideally, we would be looking for more than 5% but what the market probably needs is little and often.”

His own company took around two weeks of downtime over Christmas to reduce inventories. Despite the “complication” of the snowfalls, January proved to be a relatively busy month, disrupted by timber supply problems, resulting in the fact that the producer’s lead time has extended – “temporarily, I would hope” – to a maximum of seven days.

Even though the worst excesses of this UK winter appear to be over, supply of timber remains an issue. “The snow may have gone but a lot of owners are still reluctant to let harvesters into their forests for fear of causing damage,” TTJ was told. Commenting that his company was planning no extended downtime in the near term, one UK producer said: “The only thing that could change this is a lack of timber.”

Continental capacity

This problem is not confined to the UK. Some Continental producers said that the dearth of timber has already led to production downtime and could impact on capacity utilisation going forward. While the recent harsh weather has exacerbated the timber supply shortage, one said, this is going to be “a long-term situation”, not least because of greater competition for supplies from, among others, the biomass industry.

In January, sales achieved by some of the leading MDF consuming sectors failed to live up to the expectations of many. This view is supported by latest feedback from the British Retail Consortium (BRC) which has reported a dreadful start to 2010 on the back of economic uncertainty, a return to the higher level of VAT and severe winter weather. The snow and ice had a particu-larly adverse effect on DIY and furniture sales, according to the BRC.

As for the construction sector, UK housing starts declined 20% last year but the second half of 2009 brought “a gradual improvement, with December 2009 housing prices 6% higher than the prior year”, Norbord noted in its latest financial results statement. The company’s European average prices for MDF declined 16% in 2009 when compared to the previous year, it added. Prices “stabilised by mid-year” after having been “under pressure at the beginning of 2009”.

MDF producers acknowledged this week that demand has improved for building-related applications – but not hugely – whereas the shopfitting and wider joinery sectors appear to be offering up “encouraging signs”. A distributor said of demand: “January was awful but February in general is setting a cracking pace and MDF is playing its part. People are hitting shortages even on some standard items because they didn’t realise there were lead times.”

Meanwhile, various factors have conspired to keep the volume of MDF imports to a trickle, including relatively low prices in the UK; high levels of domestic demand in some producer countries; the rising trend in freight rates; and an unfavourable currency situation. While acknowledging that the pound had gained ground on the euro recently, a leading panel product importer said an exchange rate of nearer £1/e1.25 would be required “to open up possibilities”.

Non-standard MDF

MDF imports are restricted largely to non-standard items such as MR, FR and thin MDF. In this context, Sonae UK is launching a stock range of thin MDF brought in from group mills on the Continent.

Veneered MDF traders have been seeking higher prices to offset the rising costs of MDF, melamine and the veneer itself. Having confirmed that he would probably be looking to implement a hike of 5-7% in March, a UK-based agent complained that some of his competitors had been accepting offers approaching 15% below their list prices, adding that some were prepared to compromise on quality to win the business. “If we keep lowering the grade, we will lose out to melamine because the end user will get fed up with the quality,” he said.

He also said that MDF prices must continue to rise, not least because the sector’s majors “have made losses for long enough”. But contrary to the view of our distributor, he still thought 2010 would be “as tough as last year – certainly in the first half”.

On a brighter note, another producer said that when the upturn set in, it could be quite marked.

“Later this year MDF may move along at a fair old pace,” he said. “And with supply likely to be a key factor, there should be “potential for more price increases”.