The bullish tone adopted by domestic MDF manufacturers in the middle of December has been replaced by a slightly more cautious interpretation of the market and by a reluctance among the main manufacturers to attempt further price increases during the early weeks of the new year. However, the ‘big three’ producers were continuing to talk this week about the strong probability of implementing price rises during February or, at the latest, in March.
While confirming that there had been a pre-Christmas dip in business, producers pointed to a reasonably strong sales momentum from early in January. A senior spokesperson for one of the major manufacturers commented: “The week beginning January 6 gave us our best order intake for two months or more.” A leading figure with another producer said that sales had “picked up nicely” and were exceeding those for the same period last year. Sales of standard board had been strong since the start of the year while sales of some value-added products – for example, MR, FR and MF – had begun to recover after being “slow out of the blocks” in early January.
A supplier of non-UK MDF commented: “A lot of my customers’ customers went off on their Christmas holidays without ordering, and so they are now screaming for quick deliveries. I also think that a lot of people bought material before Christmas just to reach their retrospective discount levels.”
Slow start
Not everyone subscribed to this largely positive review of early 2003. Several contacts complained of a slow start to the year in terms of enquiries. It was suggested in a number of quarters that, with lead times extending in the latter part of 2002, many buyers had opted to put on orders and were still working their way through these stocks.
For their part, domestic manufacturers acknowledged an element of “nervousness” within the UK market as a result of falling lead times coupled with a return to full production. Two of the ‘big three’ put their own lead times at around two weeks, while the other suggested that most stock items were available “inside a week”. For those items not in stock, he added, the lead time was closer to two weeks.
The manufacturers were at pains to point out that prices have been holding firm and are still subject to “ongoing review”. One of them confirmed that prices would be reassessed in February in the light of trading conditions during the first six weeks of the year. Asked about the likely outcome, he said: “It will be a price increase if anything. We are certainly not looking to decrease prices.”
A producer who initiated five price increases during 2002 suggested that, once stocks had begun to fall, there would be scope to continue the upward price trend established in 2002 – probably in the second half of February or into March. Dismissing the prophets of doom, he said: “I don’t think that prices will collapse. We are reviewing prices all the time because we still feel that they are too low.”
The third domestic MDF producer echoed the same sentiments, pointing out that rising oil prices had already prompted resin suppliers to “make noises” about increasing prices for this essential raw material. “The price of MDF is still very poor compared to what it should be,” he said, before adding that the next round of increases might be delayed until March, depending on how sales performed in the next few weeks.
No deals
Despite what one market expert described this week as “prompt” lead times, most MDF players have been cheered by the fact that domestic producers have held their prices over the holiday period when at least one overseas MDF manufacturer has been tempted into making a reduction. “The UK market remains stable and there are no signs of deals or price weakness,” said one. “The manufacturers seem to be juggling things quite well.” He believed that prices would resume their upward momentum during 2003 but emphasised that producers had to choose “the right moment” to introduce increases.
“The UK market remains stable and there are no signs of deals or price weakness. The manufacturers seem to be juggling things quite well” |
Another source was more emphatic: “A price increase at the moment would be a mistake, even though MDF is about the only panel product that is not under pressure.”
Others pointed to the shortened lead times and higher manufacturer stocks as signs of “some cracks appearing” in the MDF recovery. Indeed, one or two experts were questioning the wisdom of domestic producers maintaining production throughout the Christmas period. The response from producers is that high capital investment in MDF manufacturing equipment is costed out on the basis of a 52 week per year production schedule. A senior representative added: “It is normal for us to run over Christmas – in 2003, for example, we will close for just two days outside of the normal preventative maintenance programme.”
Nearing a balance
He went on to underline that, when taking the longer-term view, a balance between MDF supply and demand was edging ever closer and may even be reached at some point during this year. Since there were very few new MDF production ventures in the offing, full-time running of existing production plants was appropriate given “the ability of the market to continue growing”. Several other contacts emphasised MDF’s positive fundamentals: there would be a significant time lag between the announcement of any new venture and the plant actually coming on stream, by which point the market would have had an opportunity to grow still further.
While a couple of the domestic producers said that holiday production had enabled them to build stocks, the third confirmed that some of his plant’s Christmas output had been shipped out of the UK.
As for MDF coming the other way, none of the domestic manufacturers appeared concerned about the current level of imported board. “We saw some imported board towards the end of last year – but there were no surprises,” said one spokesperson. “Some sellers will just dip in and out of the market as they see fit.” It is understood that, while competitively-priced material has been arriving in the UK from at least two other European countries, the volumes involved have been insufficient to have any great impact on the market. “UK prices are still not good enough to encourage overseas producers to commit too much board to this market,” said one supplier.
Patchy demand
While the long-term demand prospects for MDF remain positive, the here-and-now is witnessing at best patchy demand for some of the material’s key end uses. “One day is busy and the next day is so quiet you wonder whether the phones have been disconnected,” said one source. Many parts of the furniture trade appear to have been hit not only by unspectacular Christmas sales but also by cheaper imports, with the hotel furniture sector said to be still suffering the after-effects on tourism of the September 11 terrorist attacks in the US.
By contrast, “fairly strong” demand was reported for laminate flooring, and also from the kitchen and shopfitting sectors. Thin MDF is expected to enjoy another good year, with several sources pointing to “evidence of a shortage of supply”.
Meanwhile, the new year has brought a familiar message from the value-added side of the MDF business, with complaints that MR material remains substantially under-valued. Price increases on standard board over the past year or so had not been reflected to anything like the same extent in this area of the market, said one operator.
The mouldings sector, meanwhile, has witnessed a steady start to the year, with sales broadly in line with expectations. But yet again, there were complaints that some mouldings suppliers had talked about price increases prior to Christmas but had subsequently accepted even lower prices for what was already an under-valued product.