Competitively-priced board from South America is being widely blamed for a pause in the forward momentum of the UK market for MDF. Indeed, several leading industry figures contacted this week suggested that much-needed MDF price increases would probably have to be put on hold because of the dampening effects of these imports.

Domestic manufacturers enjoyed a large measure of success last year in chasing off the threat of MDF imports. However, as indicated in our final report of 2003, a significant volume of MDF produced at the Duratex mill in Brazil was expected to arrive in the UK during the final weeks of 2003 and the early part of 2004. Further shipments will be made in the coming months, it was confirmed this week by International Plywood.

Import impact

The total volume of these Brazilian imports to date is understood to be around 15,000m3 spread over three shipments, which equates to only some 1.5% of the UK’s annual consumption of MDF.

However, in many quarters the imports are claimed to be having a de-stabilising effect on the UK market. “Some people will say it’s only a few thousand metre cube, but it’s what everybody talks about in the market place – it becomes the level you are expected to get to with your pricing,” TTJ was told by one concerned source. “It is incredibly cheap board and it has messed up the whole UK market.”

Many contacts criticised what one described as “the British fixation with buying solely on price – no matter what the consequences for the wider market”.

According to several contacts, the fact that the Brazilian board has been arriving at a port in the south of England has meant that its impact has been greater there than in the north. And while the imports are understood to cover a range of thicknesses, its arrival has caused the strongest reverberations in the standard board market. One contact ventured: “There is a limited specification on the imports so they have tended to affect the merchanting sector more than any other.”

Talk of market de-stabilisation has been dismissed as “paranoia” by other elements of the domestic MDF trade, who suggested the volumes involved were far too small to have any major bearing. One source commented: “It’s a drop in the ocean in volume terms. Domestic manufacturers are using it as an excuse. They have sold MDF cheap in the past and built up an expectation of cheap prices, so when they try to put prices up, the market does the obvious thing and looks for a cheaper source.” It was argued in one quarter that the Brazilian board was not even the cheapest available on the UK market at present.

From the perspective of the big three domestic producers of MDF, relatively cheap imports have had a significant impact on business over recent weeks. A senior spokesperson for one of these companies acknowledged that, in terms of demand, both the fourth quarter of last year and the first few weeks of 2004 had proved to be busier than expected, such that order files were currently “reasonable” and lead times were around two weeks. Prices had been stable for several months but returns remained very poor, to the extent that “we are losing money on MDF”, he went on to say. “It is difficult to get price increases with the US dollar-related competition putting a damper on it for us.”

European economies

Another leading domestic producer figure explained that renewed pressure from imported board was coming at a time when several of Europe’s major economies were continuing to struggle. However, he also confirmed that his own company’s operation had achieved its MDF sales targets in January but that market conditions had not provided the scope for price increases thus far in 2004. “We are all anxious to improve the values from where they are – March is traditionally a busy month and this may give us an opportunity for a price increase,” he suggested. “We [the MDF manufacturers] are all watching each other and I suspect that, when one goes with a price increase, we will all go.”

&#8220March may give us an opportunity for an MDF price increase. We are all watching each other and I suspect that, when one goes for it, we will all go”

He suggested that MDF prices would have to rise by as much as 20% before domestic manufacturers would be securing what they considered to be “decent returns”.

The third domestic producer of MDF claimed to be operating on lead times of nearer one week. “We could sell a lot more MDF tomorrow if we put our prices down but we are not willing to do that,” a spokesperson told TTJ. Given the poor returns available at present, he believed a price increase of at least 2-3% was inevitable by the start of the second quarter.

A spokesperson for a Continental MDF producer said that prices in the UK were so low at present that his company had taken the decision at the start of this year to supply to this country only against existing contracts at pre-negotiated price levels. He said: “We can get more for our product on the European mainland for lower transport costs, and we have also got growing markets out in the Far East.” Even some of the struggling European economies, such as Germany, were exhibiting small but noticeable signs of recovery, he added.

A contact who imports MDF from even further afield also bemoaned the “tough” market conditions in the UK and confirmed that “prices would have to go up by more than 10% before I could get a look in”.

Many contacts refused to be downbeat about an MDF market that was continuing to demonstrate relatively robust growth in the UK. According to one domestic manufacturer, the gap between production and sales has been narrowing significantly. He predicted that availability of MDF would continue to tighten in the coming weeks and months, not least because no new major additions to European production capacity were envisaged for the medium future. He believed that the threat posed by South American imports would gradually recede as consumption developed in the producers’ domestic markets.

Decision welcomed

The more upbeat players in the UK market have welcomed the decision by domestic manufacturers to hold firm on their prices, which were last increased by an average of 5-6% during the final months of 2003. “Prices have firmed to the point where there is now an accepted low price whereas it was unclear beforehand,” commented an experienced trader. The lack of a price drop during the traditionally slow pre-Christmas period had added substantial stability to the market and further price increases were inevitable, said another. “The price of MDF will get dragged up by other panel products as we head into the spring, although the acid test will be the summer.”

Despite these generally positive comments, however, the suggestion that a further price increase might be attempted as early as next month drew a largely sceptical response from industry observers. “It’s good that there have been no deals around from the domestic manufacturers but I think a March price increase would be a bit brave,” was the view of one experienced trader.

Furniture sales

Other sceptics pointed to continuing signs of weakness in some key consuming sectors. For example, furniture sales had been far from buoyant and the industry’s prospects were unlikely to have been improved by warnings of further increases in UK interest rates, it was suggested this week.

As indicated earlier, the current price pressure has been most evident in the standard board area of the market. However, MR and FR prices were also reported to have dropped towards the end of last year, owing to increased competition. The possibility of more UK-based production capacity being directed towards lighter weight MDF would increase competition in this segment too, TTJ was told.