Continuous investment boosts global capacity

Following on from MDF Part 1, our survey of the industry in Europe and North America, we now focus on the existing MDF mills in the 'rest of the world' as at end-2013 and on those under construction in 2014, or planned for 2015 and beyond.

Our survey of Europe and North America showed considerable ongoing consolidation in the industry and, in selected areas, new capacity and growth, particularly in Russia, Belarus and Turkey.

For the 'rest of the world' we show an anticipated increase in 2014 of 1,919,000m3 to 65,130,000m3, over the end of 2013 at 63,211,000m3, and a further range of investments for 2014 and beyond, in various countries, bring the total to 69,440,000m3.

This year's survey again provides listings of capacity in the various regions as at end- 2013 and the growth expected, and capacity installed, during 2014, 2015 and beyond.

From the tables, it can be seen that the increases in 2014 and beyond are accounted for by Brazil, Paraguay, China, South Africa, Pakistan and Vietnam. It also includes two plants (circa 368,000m3 combined) for 'West Asia', that we understand have been contracted for, but which have not yet been publicly revealed in terms of final location. We have included them in South East Asia in the 'Aggregate world capacity' table.

Our sincere thanks again go to Shanghai Wood Based Panel Machinery Co (D-SWPM), Dieffenbacher and Siempelkamp for investment information which means we have been able to revise and update the number of multi-opening and continuous MDF press lines in China (and elsewhere) in all our listings.

Particular thanks also go to Bernie Neufeld of BIS Shrapnel, Australia, for providing insights and forecasts for China and other countries covered in this report.

China and North East Asia
Average annual growth over the past five years has been relatively strong, with the exception of Japan where GDP growth declined by 0.1% on average.

In China, GDP growth averaged more than 9%, while South Korea averaged almost 3%.

Projections are for strong GDP growth again across the three countries to 2017, with considerably stronger growth in Japan (2%) and South Korea (3.5%) offsetting still strong, but somewhat less buoyant than in the past, growth in China (7%).

China is forecast to produce 90% of the furniture in North Asia by 2017 and the strong growth in the region will influence not only the aggregate consumption of all wood panels, but also the proportion of use by each sector.

Approximately 25-35% of the annual production of furniture in China is exported to a wide range of countries, with the largest volumes destined for the US, Japan and Europe, while the domestic market continues to grow, year on year.

MDF production capacity in China has grown rapidly over the past five years. Based on current, announced and assumed expansion plans, production in China is projected to grow less rapidly over the next three years, most likely peaking in 2014/15 and then declining marginally by 2017.

Consumption forecasts are for levels to increase at an average annual rate of just 1% in China over the three years to 2017, as the country shifts to a focus on domestic growth at the expense of exports, such as furniture.

In the last 12 months, commercial activity in the Chinese MDF industry has decreased, as expected, as the government tries to rein in the country's dramatic economic growth of recent years, to curb its housing boom and to control inflation. Also, the export of furniture in some markets remains challenging in light of the ongoing global economic problems.

However, we can still report a lot of truly dynamic activity in China. For instance, the Shandong Heyou group investment in Yucheng, mentioned last year, is now up and running and is in the 2013 main listing, shown as the company's line 12.

Sixteen new multi-opening D-SWPM lines in China, with a capacity of 1,050,000m3, are due on stream by the end of 2014, along with the Shandong Chiping 215,000m3, and Guangxi Fenlin Wood Based Panel Co 165,000m3, continuous lines, all being supplied by D-SWPM.

For the period 2014 and beyond, we can see three new lines from Siempelkamp: for Changge Tianzheng in Henan (116,000m3); Gixiang in Shishu City (168,000m3); and Luyuan IV in Luoding (230,000m3).

Dieffenbacher has an additional investment from Xinjiang Jinyang Meijia in Miquan City with a 300,000m3/year 2440- 2500mm width line.

Additionally, in that same time-scale, we see more 4ft continuous press lines being supplied by D-SWPM with the six investments shown in the accompanying separate table.

All these mills mentioned, committed and under construction in 2014 and beyond, make an additional production capacity total in China of 3,267,000m3.

As mentioned last year, with the difficulty in obtaining totally accurate information on Chinese capacity, including all the small mills, we have had to make some informed assumptions. Accurately verifiable information from any reader on Chinese capacity is always welcome, as we continue to refine our data going forward.

South East Asia
Here, the regional economies, together with North Asia, are set to be among the world's fastest-growing out to 2017.

Four of the five countries - India, Indonesia, Malaysia, Thailand and Vietnam - are expected to have an average real GDP growth rate of 5% per annum or higher, the exception to this being Thailand, which is expected to have an average annual growth rate of just under 5%.

The following factors, however, will help support stronger residential construction activity over the medium term, driving demand for MDF: Economic development will strengthen household income, which will support residential construction; the number of households increased by more than five million per year over the decade to 2011 and this level of growth is projected to continue; urbanisation will generate demand for dwellings in the major cities; improved transport linkages will support the establishment of new or enlarged urban centres; an existing shortage of housing should help buttress residential construction; and a gradually growing middle class should support a trend to improved housing quality.

In Vietnam, the large Dongwha mill, which is a joint venture between Vietnam Rubber Group and experienced panel maker and South Korean company Dongwha, we understand is running well since the start-up in 2012, as is the second major MDF line in the region recently built by Panel Plus, in southern Thailand.

Also in Vietnam, Thang Nam (May) Forestry Joint Stock Company (JSC) expects the first phase of its 175,000m3/year mill in Ving Nghe An to be on stream during 2014 and its second phase during 2017.

The company says that: "The plant will use advanced technology and production lines to exploit all parts of a tree to maximise raw material sources and manufacture competitive products meeting world quality standards, to be sold in the US, Japan and European markets. The operation of the plant will also be environmentally-friendly and energy-efficient".

The Thai furniture manufacturer, Kijchai in Rayong with its new 300,000m3 MDF line, which first produced commercial quality board in spring 2013, is now shown within the main listing.

Metro-Ply, also in Thailand, says "The company definitely plans to add further MDF capacity," although a date for that investment has still not yet been decided.

In Malaysia, we see no new investment plans currently, but a maturity in the country in dealing with MDF issues and the ongoing work of the Malaysian MDF Manufacturers Association (MMMA). Officially formed in October 2012, the organisation is led by Chairman Peter Fitch, Managing Director of Segamat Panel Board Sdn Bhd (SPB), which is also a member of the Wood Resource Task Force (WRTF).

The MMMA has speci?c goals which have been de?ned as follows:

• To continue to promote Malaysian manufactured MDF as a global standard for MDF produced in South East Asia
• To ensure its members are kept up to date with the latest international regulatory requirements such as CARB, JIS and other such initiatives implemented by importing countries
• To promote and encourage the sustainable and environmentally compliant use of raw materials, especially the procurement of timber, within Malaysia to ensure continuity of supply
• To work with government agencies to ensure the industry is adequately represented in terms of free trade agreements, legislative and other regulatory business
• To represent the MDF business in Malaysia, for the common good of its members.

The Malaysian MDF business has been very responsible in terms of sustainability with no new capacity being installed since 2003; and the association is working closely with the Malaysian Timber Board (MTC) and Malaysian Timber Industry.

South America
Argentina, Brazil and Chile, with a combined population of over 250 million, appear to have an underlying demand of well over one million housing units annually.

All three economies have come out of the financial crisis with strong upturns in the past three years and, despite slow growth in 2012, are well positioned now for a strong economic performance through to 2017, led by the construction industry.

Virtually no MDF was produced in Brazil in 1998, and yet it now has the largest production capacity in South America. Key producers in the region include Masisa, Arauco, Duratex, Fibraplac, Floraplac, Eucatex and Berneck.

On current plans, it is projected that production capacity in South America will exceed 10 million m3 by the end of 2017.

In Brazil, 2013 saw two new lines come on stream and these were the Arauco 500,000m3/ year line at Jaguariaíva, Parana state, and Duratex's 520,000m3/year Itapetininga line. These are both now included in the 2013 main listings.

Fibraplac of Porto Alegre had previously indicated an MDF investment in Campinas in São Paulo state, scheduled for 2013 start-up, but the project we now understand seems to have been dropped altogether. However, the firm continues to expand its original Glorinha plant and so, for 2013, its two MDF lines there should now each be rated at around 300,000m3, making a total production capacity of 600,000m3 at that particular site.

Eucatex reached the nominal 275,000m3 capacity for its MDF/HDF line in Salto (São Paulo state) at end of 2013 and we understand new equipment may be added to the line to extend this capacity further during this year.

For 2014 and beyond, by far the biggest planned panel project is Duratex's US$550m, 1.45 million m3/year, two-line complex at Novo Monte Carmelo in Minas Gerais state.

Duratex's ceo, Antonio Joaquim de Oliveira, told WBPI a year ago it aimed to start construction of the complex in 2014, installing two Siempelkamp lines in parallel, with a 700,000m3/year unit set to run in 2016 dedicated to MDP; and a 77m press, 750,000m3/year unit for MDF, due on stream in 2017.

But, with an eye on Berneck's latest decision to start an 840,000m3/year MDP line further south in 2015, the São Paulo-based group has now shelved the final product decision until 2015.

At this stage, it now looks likely to actually dedicate the first 700,000m3 line to MDF. Duratex has also left space there for a third line, of either MDF or MDP.

Other new planned capacity is from Placas do Brasil, a consortium of furniture producers planning a 180,000m3 line at Pinheiros, (Espirito Santo state), but no firm progress has yet been confirmed towards an estimated 2015 launch.

There is also Floraplac, with 430,000m3/ year, at Paragominas.

Asperbras, an industrial and agri business group in the south western state of Mato Grosso do Sul, is a complete newcomer to panels. We have reported that the company plans to use its eucalyptus plantations to feed a 200,000m3/year Siempelkamp ContiRoll line, expected to be up and running by early 2015.

We must also include another significant project under way by one of the smaller southern players, Guararapes Paineís in Caçador (Santa Catarina state).

Already running a 120,000m3/year SWPM batch press line, the firm recently ordered a 1,000m3/day Siempelkamp continuous thin fibreboard line, set to produce commercially in 2015.

The company was originally looking to upgrade to a continuous press in 2011, but it was a long time in the planning, so as a result, no project was listed last year.

We reported last summer that the Ecuador panel maker Aglomerados Cotopaxi was preparing to invest in a new 250,000m3/year continuous-press MDF line at its Lasso plant.

It seems from recent reports that there is a change in plans and it has now opted to upgrade its particleboard production instead. We also have an updated annual capacity for the main MDF 2013 listing for the existing Cotopaxi MDF line to 85,000m3/year from last year's 58,000m3/year.

In Paraguay, WBPI has recently reported that a modest project to build the country's first MDF plant - a 55,000m3/year unit in Coronel Oviedo - has been given the green light by the Industry & Commerce Ministry there. It is planned by a local company, Agroindustria del Paraguay SA.

In Chile, with the giant Chilean Arauco group focusing on reshaping and upgrading its recent acquisitions, including Flakeboard in North America; and the other big local player Masisa concentrating on its US$132m, 200,000m3/year, MDF plant in Mexico, there is little if any panel capacity expansion in Chile at present.

The Chilean market is limited but Masisa has reported sales up 21.6% there in Q1, 2014, largely due to rising demand for surfaced board.

With both the 2014 World Cup and the 2016 Olympics being held in Brazil, and despite government assurances that infrastructure projects would, when finished, eventually benefit the Brazilian people, the effect on Brazil's economy and construction sector (including demand for MDF) is actually expected to be rather small.

Consumption of MDF in South America overall, however, is projected to increase to around seven million cubic metres by the end of 2017. Most of this will be in Brazil, which will be consuming 74% of all MDF in South America by then, although consumption will also expand in other countries such as Ecuador, Peru, Uruguay, Venezuela and other non-producing South American countries, providing strong export demand.

World Summary
The 'Aggregate world capacity' table lists the capacities in the various regions of the world from 2012 through to 'beyond 2014'. Some of this capacity is not anticipated to come on stream until 2015/16, including the Duratex and Placas do Brasil lines, assuming they are not further delayed in South America.

In order to also have an overview of other important MDF producing countries globally, and to complete the picture, we are providing a short update, where relevant.

Australia has had uninterrupted growth, without a major recession, for the past 20 years. Most recently it has performed better than most advanced economies, in part due to its trade links with Asia, especially China.

MDF production in Australia peaked in 2006 and despite a relatively strong economic performance, by 2012 production had declined to a level that was more than 40% below the peak. Production averaged just 594,000m3 and declined by 7% annually over the past five years. As a result, MDF exports from Australia have declined significantly.

The major producers in Australia are Alpine MDF, owned by Japanese company Sumitomo; Laminex Group, owned by New Zealand-based Fletcher Building; and Borg Industries.

Australian housing construction has been relatively weak in 2013 and 2014, but a stronger recovery is projected for 2015 and 2016, driven by lower interest rates, strong population growth and pent-up demand in key states. This will drive an increase in demand for MDF.

In New Zealand, the economy, which is highly trade-exposed and export-dependent, especially in the forest products sector, responded to the global financial and economic crisis with recessionary conditions.

However, the building and construction cycle is forecast to shift to a strong growth path in New Zealand (albeit from a very small base) over the next three years, with housing approvals projected to rebound strongly, peaking at approximately 24,000 units in 2015, which is still below the peak of 31,000 reached in 2004.

MDF production in New Zealand is now forecast to increase gradually and stronger increases in production will be contingent on capacity expansion.

The major producers in New Zealand are Nelson Pine, owned by Japanese company Sumitomo; Daiken, owned by Japanese company Itochu; and Dongwha Patinna, owned by Korean-based Dongwha.

Approximately 75% of the MDF produced in New Zealand is exported.

Domestic MDF consumption is projected to increase at a rate of 3% annually to 2017, in view of the projected stronger housing market, and should peak at 219,000m3/year by 2016, which is above the peak of 211,000m3 reached in 2004.

An interesting point to note is that, on a per capita basis, New Zealand is one of the highest consumers of MDF in the world.

With North Asia, China, South Asia, 'West Asia' and South America already mentioned or discussed in detail, that just leaves our 'rest of the world, other' category, which in this case refers only to South Africa and Pakistan.

In South Africa, two mills are under construction (as reported last year) and are to be added into capacity for 2014 for a total of 314,000m3. These are PG Bison at Boksburg and FX Veneers at Mpumalanga Highveld.

On average, private sector housing in South Africa is projected to grow by 12% annually to 2017 and the demand for furniture in South Africa has strengthened considerably over the past decade.

As a point of reference, furniture consumption values more than tripled, from US$574m in 2003 to US$1.8bn in 2012.

Despite the sharp declines in the two years following the global economic crisis, MDF consumption increased by 5% annually over the past five years.

The relatively strong growth in production and consumption of furniture in the past decade, as well as projections for strong growth out to 2017, suggest that it will be a key sector driving growth in the consumption of MDF and particleboard.

South Africa currently does not have the capacity to produce enough MDF to meet its domestic requirements: net imports over the past five years have amounted to approximately 60,000m3 annually. While an excess of imports over exports is expected to continue through 2014, the balance is expected to change, with exports exceeding imports by 2017: Based on production and consumption projections, MDF exports could be around 170,000m3 and imports less than 50,000m3, annually.

There are currently only two producers in South Africa: PG Bison and Novabord (Sonae), but production capacity is now growing.

In Pakistan, ZRK Industries (Pvt) Ltd announced a brand new investment in an MDF mill with a continuous line in Mardan, which is being supplied by Dieffenbacher, with start-up planned in 2015. The ZRK group is the largest wood based panel industry in Pakistan, producing both MDF and particleboard. Having state-of-the-art plants supplied from Europe and China, it has a distributor network throughout Pakistan, Afghanistan and Central Asia and claims to be covering the building industry needs of more than 300 million people. Its wood processing division is vertically-integrated and the group consists of Pakistan's largest brand new fully automated particleboard plant, paper lamination and impregnation lines, and also, now, Pakistan's largest brand new MDF Plant is now under construction.

The company states that its future direction and vision "Is to be a world class vertically-integrated wood processing Industry, blending advanced technology with innovative thinking".

So, as previously stated in this MDF review, western Europe and North America are currently fairly stable, with the growth in Europe only coming from the eastern region and in North America, from Mexico.

In summary then, our final aggregate total for global MDF capacity at the end of 2013 is 89,874,000m3 and it looks set to reach 94,076,000m3 by the end of 2014. Beyond 2014 we could reach 98,936,000m3, based on current information .....the global growth continues for this amazing wood based panel product!

How the listing was compiled
The WBPI listings published in 2013 were reviewed and modifications made using other published sources and data received directly from the mills and industry experts. Published information was reviewed for news of capacity changes. These sources include relevant trade magazines, association reports, press releases and equipment suppliers' reference lists.

Self-completion forms were distributed to the mills, requesting current and future capacity data. The form was also posted on a special website (www.intermark.plus.net).

The mills' own reported capacities are used wherever possible because this is the basis upon which they can make their estimates of future capacity and production changes. Where this information is not available, published sources are used, usually on a basis of 330 operating days per year.

Conversion of 1,000ft2 to m3/year is made with 1,000ft2 equal to 1.77m3.