Summary
• September/October’s MDF price rises have been absorbed by the market.
• Cost increases in the last quarter are put down to energy prices and biomass competition.
• The New Year could see some substantial re-stocking.
• Eurozone uncertainty is making predictions impossible.
• UK exports of MDF are currently 23% ahead of last year.
• Capacity closures on mainland Europe will create openings in the UK.
Despite “isolated examples” of price softness in the domestic MDF market over the last couple of months, “the trend line is still upwards”, TTJ was told.
Prices have stuck “in the main”, said one producer, despite the threat posed by “some localised weakness”.
These price wobbles are seen as a manifestation of attempts to keep stocks to a minimum for end-of-year accounting purposes –“and so hopefully will be a temporary blip”, said one contact. But while others described the “odd deal” struck in the marketplace as evidence of supply exceeding demand, the overall perception is not of any significant market weakness.
The MDF price increases introduced in September/early October have been absorbed by the UK market, but the smart money is being bet against a further hike from the very start of 2012. Indeed, one producer said his company was aiming for an MDF price increase in the first quarter of next year but seemed to rule out the possibility of a hike immediately in the New Year. He said the upward move would probably be made “earlier in the quarter rather than later” and was likely to be around 4-5%.
“We need to continue to move our prices further forward,” he said. “I foresee more increases during the course of next year because that has to happen.”
Another producer echoed these sentiments about the need for a further price increase of 4-5% in the relatively near term, but he expressed doubts as to whether it would be before February. “I don’t see that the market is ready for another increase just yet,” he said.
As ever, the main driving force behind this pressure on producers to maintain upward price progress continues to be the escalation in their costs. The most significant cost squeeze in the fourth quarter has come, said one MDF producer, from energy and also from wood owing to “on-going competition from biomass”. Petroleum-based resin costs have also risen and are likely to climb higher still in early 2012 due to continuing instability in the Middle East.
Rising material costs
Another producer said that his company’s urea costs have risen over 30% since the start of the second quarter of 2011 and that this increase “has not been recovered”. Costs of timber have also been rising, while energy bills have stayed high.
The prospect of MDF price hikes early in 2012 doesn’t go down well with non-producers.
“Steady as she goes – that’s what I would do,” said one. “We need stability because the market is very nervous at the moment.”
He said that the market – with some help from exports – is absorbing what is being produced at present and no moves should be made to endanger this “fragile” supply/demand balance, especially as winter weather might hit prospective end user orders.
A major distributor said the New Year could see substantial restocking but that “MDF price rises will still be hard to pass on”. He shared the view that February is a more realistic target for increases.
According to another producer, his company’s MDF sales volumes have been higher in 2011, helped in particular by growth in demand from a shopfitting sector which has been “investing strongly in retail outlet upgrades in a bid to attract the more limited amount of custom available from a nervous public”.
He also said the London Olympics developments had helped, requiring relatively small volumes, but boosting timber products’ profile, and that recent government announcements to boost the construction industry were “encouraging” for MDF.
His summary of MDF conditions overall was that “volumes are difficult to maintain” but that “I don’t think the market is as bad as many make out”. He conceded that the final months of 2011 were proving to be challenging and that 2012 is also likely to get off to a difficult start, but he also felt that “there is enough in the market to keep everyone reasonably comfortable”.
Taking all of these factors into consideration, he suggested that the MDF production downtime taken by his company around Christmas would probably be broadly similar in length to that implemented last year. Meanwhile, another of the leading producer operations has ambitions to run throughout the festive season – a move which will enable the company to build up stocks which are currently “OK” but towards “the low side”. He reported that demand for raw board is “not dead – but not that lively”, whereas decent orders have been fielded in recent months for faced MDF.
Also prepared to look for the positives, he added: “Demand is not that bad at the moment. There are challenges ahead but that’s no reason to lose our nerve.” He was injecting at least some caution into his outlook “because there is too much going on that I can’t influence” – a specific reference to the economic uncertainty created by problems in the Eurozone and its clear effect on UK consumption of all panel products.
Exports continue to serve as a useful pressure release valve for the UK market: in the first eight months of the year, the period covered by the most recent figures from The Timber Trade Federation (TTF), overseas shipments of MDF were running 23% ahead of the pace set in January-August 2010 at 108,000m³ versus 88,000m³ (the volume exported from the UK throughout the whole of last year was 138,000m³).
One of the “Big Three” local producers confirmed this week that his MDF exports have continued to grow during the course of 2011 and that volumes are now expected to stabilise at these elevated levels. His shipments to overseas customers now account for a “two-digit” percentage of overall sales of MDF compared to relatively low single digits in the not-too-distant past, he added.
Most other experts believe this trend towards a stronger export performance will persist, not least because capacity closures on mainland Europe will create business openings – while also limiting the volumes available to cross the Channel into the UK, which are already “next to nothing”. MDF demand on mainland Europe is seen as decidedly less encouraging than that in the UK. And according to one domestic producer, MDF producers on the Continent are also likely to come under increasing pressure with regard to wood supply.
Remembering that UK import figures include shipments into this country from the Republic of Ireland, volumes of MDF arriving in the first eight months of 2011 amounted to 428,000m³, representing an increase of 1.3% from the 423,000m³ received in the same period last year. In 2010 as a whole, the UK imported 597,000m³ of MDF.
Coillte Panel Products will be hoping that next year’s UK import figures reflect early “export” success for its recently launched Medite Tricoya MDF. “We have now got stock in the market with a number of selected distributors,” a spokesman told TTJ this week. Initial response to the product – which offers “resistance to natural forces” such as the weather and fungal attack – has been “very encouraging”, he added.
