Buyers adiust to rising MDF prices

fD uvs,ns ARE FTNDTNG it trickier to I-lprocure medium density fiberboard, as resurgent demand causes prices to rise, according to a new IBISWorld report.

"Growing demand for MDF has allowed suppliers to increase their prices, lowering buyer negotiation power," explains IBISWorld procurement analyst Jesse Chiang.

She gives MDF a buyer power score of 2.9 ortt of 5, reflecting moderate negotiating conditions for buyers. MDF price movements depend largely on residential and nonresidential expenditure levels, as well as private spending on home improve- ments-all of which have grown sharply over the last three years.

Rising prices are restraining buyer power because buyers are less able to delay contractual decisions with prices increasing continuously. Instead, buyers must negotiate contracts to lock in lower prices. Prices are forecast to grow substantially over the three years to 2017, which will continue to reduce buyer power in the coming years.

Price increases for inputs such as lumber also led to price growth for MDF, limiting negotiation flexibility for suppliers that struggled to maintain profitability. Consequently, buy- ers are left with fewer opportunities to arrange favorable deals and negotiate lower prices. Additionally, moderate market share concentration and product specialization have created a tougher purchasing environment for buyers.

"Large, vertically integrated operators have significant market power, while moderate product specialization reduces buyers' ability to locate suppliers capable of satisfying their specific product requirements," says Chiang.

Nevertheless, buyers do have some considerable advantages. The high availability of substitute goods ensures that buyers are not forced to accept major concessions in their contracts because of their ability to switch to other suppliers that distribute alternative building materials.

Secondly, low switching costs limit suppliers' ability to charge higher prices. Lastly, despite high demand driver volatility, volatility in prices for MDF products has been low. This factor has benefited buyers by making inventory planning and budget forecasts easier.

MDF is an engineered wood product made of a mixture of wood fibers, resin and wax. It does not have knots or grain patterns, making it easy to work with in many building applications. Due to its strength and comparatively low cost, furniture manufacturers use MDF as a substitute for hardwood products.

The top four MDF vendors are Louisiana-Pacific, Weyerhaeuser, West Fraser Timber, and Plum Creek Timber.