Charged up and ready to take on the market

A company which has come through the devastation of the 2008 Sichuan earthquake that destroyed seven of its factories should be well-suited to meet a challenge.

Baoshan Group Co Ltd is that company and it only took a two-year pause in beginning its quest to join the MDF manufacturing community due to the earthquake.

Baoshan built its business over 30 years ago in metal working and the hydro-electric industry and decided in 2005 to diversify into MDF production. Today it is also involved in mineral water production and in tourism.

A contract for a continuous MDF press line was placed with Dieffenbacher of Germany in December 2007.

The earthquake then meant that the project was put temporarily on hold until that contract was reinstated in June 2009.

When WBPI visited the 220mu (14.7ha) factory site in February 2010, there was still a lot of work to be done.

However, on revisiting the site this February we found that commercial production of fibreboard began on August 20, 2010.

The company began by producing 2.5 and 2.7mm MDF and then produced various thicknesses in batches of 100m3 each as it familiarised itself with its new line.

After Chinese New Year 2011 – from February 10th – the line went to full production and at the time of our visit, board chairman and general manager Mr Jia Qing said he was aiming for 4,020m3 of panel that month.

“The design capacity of the line is 220,000m3/year, but this year our goal is to achieve 160,000m3,said Mr Jia, who added that the company had experienced no problems with the start-up of the mill.

The wood raw material sourced locally is becoming increasingly difficult to obtain, said Mr Jia. “The furniture industry in Sichuan province is big and many continuous [fibreboard] lines have grown up.

“Before we built this line, wood raw material was costing RMB280/tonne but now it has increased to RMB550/tonne on average, depending on the area. But we pay less than that because we set up our own plantation many years ago.

“The increased number of continuous lines also means there is also a lot of competition on sales and that is becoming more and more tough. The market is quite difficult because of this competition,admitted the chairman and general manager.

It is not only in wood supply that Baoshan claims an advantage over its competition. As mentioned earlier, the company has a background in electricity generation and owns 17 power stations, all in Sichuan province and close to the MDF factory. Thus it is able to supply its own electricity.

In considering the general raw material situation in which Baoshan now finds itself, it is of course relevant that the original plans for the mill were laid back in 2005 and then commencement of the project was delayed by the earthquake.

We asked Mr Jia if he had any regrets now about going ahead with the mill. “I feel a little regret but also no regrets,he said. “A little regret because other parts of the business – hydro-electric power and the mineral business – are simpler businesses to run and competition is less.

“In China, if you invest in hydro-electric power, it is half government and half your own company. The MDF factory is 100% controlled by us and that is not so easy.

“However, I do not have regrets in that the MDF industry is supplying a basic need that is close to people’s lives and they will always need MDF and that gives me confidence in the future.

“Our aim is to make this company as good as possible as soon as possible – and profitable. There is an old Chinese saying that says that if you decide to invest in something, you must go step-by-step and we apply that rule to our economic development.”

For the future, Mr Jia said he will pay attention to three main things:
• Management of the business
• Having skilled staff in the business
• Promoting the brand ‘Baoshan’ and the quality of the products.

Currently, Baoshan’s factory has no value-adding facilities, but Mr Jia said that in the future, this will be very important to the future of this company.

“Finding new products is very important to winning the competition and it would be very dangerous for us to stay with just raw MDF,he said. “But if we want to go for value-added products, first we have to make a very good raw board.”

As part of this philosophy, Baoshan was, at the time of our visit, considering buying 300mu of land adjacent to the existing site. The decision on what to put on that new area will be made by the end of this year, said Mr Jia.

Investment in the Baoshan MDF factory amounts to around RMB420m (US$65m).

For the time being, the factory is producing mainly thin MDF panel, which Mr Jia said suits the line, although he said they could produce HDF, depending on market demand.

That market is mainly in Sichuan, with some sales to the north-west of China.

“We are close to a very big furniture market here and close to the city of Chengdu [the provincial capital] and Sunhoo is a very big furniture producer located three kilometers from here,said Mr Jia.

Part of his philosophy for making a good board is evidently having a clean and well-ordered factory, from the neatly stacked logs in the yard to the clean factory floor to the neatly stacked and well-protected packs of board.

Unusually for Chinese mills, the line is protected on all sides by safety fencing.

The two laboratories, one for mechanical and one for chemical testing are both well-equipped, including a chamber for formaldehyde emission testing of samples.

For a company which is a complete novice in panel manufacture, Baoshan has a factory of which it can be justifiably proud. If Mr Jia’s attention to detail is anything to go by, this line should have no problem in achieving the consistently high panel quality to which he aspires and which can form the basis for the much-needed market edge of added-value production.