As their counterparts in Brazil and Chile invest millions of dollars in ever bigger and more sophisticated panel lines to match soaring market demand, Mexico - population 108 million - is yet to install its first world-scale MDF line. The nation's fibreboard (MDF/HDF) consumption is rising at a rate of around 10% per year, with all but 5% of the 300,000m³/year it used in 2006 being fed by imports - mainly from the US and Chile. A similar trend is forecast for this and next year, according to data presented to Mexican panel makers by Bernard Fuller of consulting firm RISI last October. While the country's dwindling wood reserves are barely sufficient to support its particleboard producers, decades of deforestation, an ever drier climate and a lack of serious capital investment to regenerate the woodland stock have further restricted panel industry development. However, a glimmer of hope is emerging in Mexico's tropical south with the prospect of a new sustainable wood resource growing up, with the spread of fast-growing eucalypt and gmelina plantations. For decades, most of Mexico's forest land has been, and remains today, in the grip of the archaic and inflexible 'ejido' communal land tenure system. In spite of a change of government in 2000, after 71 years of one-party rule, there was little reform or change in regulations. The president of the Mexican wood panel manufacturers' association ANAFATA, Emilio Ayub Touché, continues to press the federal government for urgent action to aid fresh forest development. A new president, Felipe Calderon, from Fox's National Action Party, was elected for a six-year term last year. ANAFATA concedes that the government operates a tree planting incentive scheme, started in 1995. This offers forest plantation investors an annual sum of around US$400 per hectare for the first five years of growth, according to the organisation's director general Armando Santiago. "Forest plantation in Mexico is going to grow because these incentives are really very good," he told WBPI during a meeting at ANAFATA's Mexico City offices. In addition, Mr Santiago reported, the Mexican government has set aside a sum of six billion Mexican pesos (US$555,000) for a scheme intended to support reforesting by the 'ejido' forest owners. This will involve the planting of 250 million tree seedlings in the community-run forests during 2007. Even so, the panel makers are disappointed that the authorities have failed to get more involved in resolving what is a serious national problem. "The situation really has not changed [shortage of quality wood]. If anything, it has got worse in Mexico," admitted the ANAFATA president, who is also president of particleboard and softwood plywood manufacturer Duraplay de Parral SA de CV, located in the huge northern Mexican state of Chihuahua (see p30). The squeeze on the flow of wood supplies is tightening as government tree cutting permits granted to the community 'ejido' forest owners are being restricted a little further each year. "This has affected the numbers of logs going to sawmills or plywood mills, but not so much the particleboard operations. Distribution of the wood has changed - bigger diameter logs to smaller ones. "Most of what people tend to cut are big and more valuable trees. So you have a forest left with smaller ones which should go either to particleboard or pulping," explained Mr Ayub, adding that the smaller trees were often left unharvested. The panel industry in Mexico has shrunk in recent years as smaller players drop out, and consolidation has taken place among the bigger producers. Today the sector is dominated by one larger particleboard company, Mexico City-based Rexcel SA de CV, part of the quoted industrial conglomerate Desc SA de CV (see p33). Rexcel's managing director Carlos de la Hoz, whose company now has particleboard capacity of around 380,000m³/year at two plants in north and central Mexico, acknowledges the problems faced by his industry as a whole. "The current [fibre] supply for the Mexican particleboard industry is tight, but has not been a factor for the industry to shut down. It is difficult, and the cost has been high, but there has been a reasonable amount of wood - not always of the best quality - available," he admitted. Mr de la Hoz agreed that for the plywood industry it is "a different story" with a "much more difficult supply situation for them". The wood supply is inadequate now for the launch of even one world-scale MDF plant in the country, he confirmed. The executive admitted Rexcel would have launched a sizeable MDF project already if the raw material conditions were better. He suggested that the situation is similar with other panel producers in Mexico, pointing out that the region's top panel maker, Masisa SA of Chile, which runs a particleboard mill in Mexico, would probably have gone into MDF too if better quality fibre was available. The Rexcel boss admitted that at the root of the wood crisis is a strong environmental "protectionist" streak over Mexico's natural resources. With its wood products industry based originally on its natural forests, they are seen more to be preserved than as a resource for a "solid industry", unlike in South America. "We're trying to persuade the government to change the mentality of how best to handle the forests," he added. He acknowledged the other major issue concerns the 'ejido' ownership but he is not alone in treading carefully in this most delicate of constitutional matters in Mexico. Rexcel is among the leaders in moves to establish a fresh wood resource in the south eastern states of Mexico. A Rexcel subsidiary already has eucalypt trees of four and seven years growing on a 10,000ha plantation in the southern state of Tabasco. This species would normally be ready for harvesting for panels after seven years. Mr de la Hoz is quick to sing the praises of the south eastern plantations, although he stresses that there will be insufficient fibre supply to support major industry growth from there within the next 10 years. "[Plantation] has a lot of attributes. It has environmental protection, creates new industry, new businesses for the poor communities and creates new jobs. But, its a long-term project for the country and for the people of Mexico," he said. According to ANAFATA, a major feasibility study on the prospects of developing a new forest products centre in south east Mexico, based on 500,000ha of tree plantations, was completed by consulting group Jaakko Pöyry for four southern Mexican states: Veracruz, Oaxaca, Tabasco and Chiapas to attract new investment. It showed that the region could in the long-term sustain two plywood, one particleboard and one MDF plant and a pulp mill. Duraplay's Emilio Ayub acknowledges the obvious benefits to the sector of the plantations option and agreed tree growth rates for the southeast are impressive at around 40m3/year. Attempts to start plantations in the arid north have met with failure and few are willing to invest in the forest without the security of ownership. In the south, where a smaller growing area is needed for high yield, there are more opportunities for private investors to acquire deforested land for plantations. But the major drawback to the industry remains the fact that most panel mills are located in central and northern Mexico, closer to the giant US market, and over a thousand miles away from a future southern fibre source. No doubt the panel makers are facing a new dilemma but most agree there is but one way to turn. "There's huge potential for plantations in the south and that's where I think the wood basket will be in the long term," said Mr Ayub. If the plantations and government and industry projects are successful, Mr de la Hoz predicts Mexico could finally have two world-scale MDF plants of its own.

Mexico City-based Rexcel, part of the Mexican chemicals-to-food and property conglomerate Desc SA de CV, came to dominate the Mexican particleboard sector as a result of its timely 2005 acquisition of the northern business of Paneles Ponderosa in Chihuahua. Today, Rexcel has set its sights on expanding its particleboard capacity still further and dreams of one day launching Mexico's first world-scale MDF plant, once the nation's severe wood fibre crisis is resolved. The acquisition was a good fit between Paneles, an established exporter of particleboard and low pressure laminate panels to the US, and Rexcel, a quality board maker with a strong position in decorative and high pressure laminates. Since 2005, Rexcel has been engrossed in completing its merger programme for the integration and improvement of the Paneles Ponderosa plant in Chihuahua city. Phase one of the extensive programme involved bringing together the differing business cultures, rationalising product lines and restructuring some of the merging companies' operations. It also included a major maintenance overhaul of the Paneles facility's Bison/Dieffenbacher continuous press line, aimed at getting the best out of its current capacity. The overhaul, involving work on areas such as electrical maintenance and the dryer, was completed in early April this year, according to Rexcel managing director Carlos de la Hoz Trigos. In a second phase, Rexcel is planning a series of investments to tackle bottlenecks in various parts of the Chihuahua line, currently producing 180,000m3/year, to bring the plant up to its full potential capacity of more than 300,000m³/year. This will see a thorough de-bottlenecking exercise upstream of the Dieffenbacher press, which was only installed in 2001 after fire destroyed Ponderosa's old eight-opening Siempelkamp press. Fibre preparation, the dryer and the glue kitchen and blending will be upgraded, Mr de la Hoz told WBPI in an interview at Rexcel's Mexico City headquarters at the end of March. Investment of between US$4-6 million has been earmarked for this project, but the company plans to delay its go-ahead by several months because of the current weak state of the US furniture market. "We put it on standby for maybe six months because the natural market, aside from Mexico, is the south, central south and south west US and the current activity of the US market is not very solid," said Mr de la Hoz. The work should be completed within the next year and a half. Rexcel runs a second, 35-year-old, panel plant hundreds of miles south at Zitácuaro in the rural state of Michoacan. There, an old Siempelkamp batch press with an original capacity of just 35m³/day was coaxed and upgraded over the years to offer a current output of 185,000m³/year. The company remains proud of this well-run facility, with its highly efficient wood processing section and panel finishing lines, serving primarily the Mexican market. The firm's third unit, in Lerma, west of Mexico City, is located alongside its formaldehyde and resins plant and acts as the company's laminating centre. While it does not produce any particleboard, it has given Rexcel its reputation for the production of high pressure laminates and a range of melamine and finish foil panels. Since the Rexcel takeover both units, in Lerma and Chihuahua, have seen job cutbacks and the new owners aim to improve the structural efficiency, particularly at the laminating centre. Rexcel wants to share Lerma's expertise in resin technology and formulations with its Chihuahua workforce. Each of the three plants has low-pressure laminating capacity and there are finish foil presses at Zitacuaro and Chihuahua. The southern mill has two Wemhöner melamine lines, a one million m²/year finish foil press and a Vits impregnation line. The former Ponderosa facility operates two Siempelkamp melamine lines and a new Wemhöner press is being installed to operate before the end of the year, said Mr de la Hoz. Veneered board is still an important market in Mexico and, as part of its restructuring, Rexcel switched a veneer press from its new northern plant to Lerma where it began delivering product in May. Lerma runs three high pressure laminate (HPL) lines. With an eye on freight costs, in its restructuring measures the company has looked over its enlarged capacity to ensure customers are served by the correct plant. On the product front, Rexcel found that some HPL customers also wanted melamine laminates. With the two lines it was able, unusually, to offer the same design for both HPL and low-pressure board. The firm was also able to rationalise Ponderosa's range of melamine panel designs, keeping several with the highest volume and dropping the rest, explained Mr de la Hoz. It is that clear Rexcel, backed by the muscle of its quoted parent group, is keen to invest and expand in the panels sector. But its executives are only too well aware of the challenges facing their industry. Today, there is great uncertainty over how best to resolve the serious issues surrounding the management of Mexico's forest land and the acute shortage of good quality raw material for its forest products industry (see p28). "We would love to have an MDF plant, but first we need to have the wood supply [in Mexico]," admitted Mr de la Hoz. Rexcel is already studying how best to proceed with this but the work is still at a "very preliminary" stage, he stressed. Pressed on the likely timing for such a project, the chief executive believed it could come to fruition in less than 10 years. "We are still working on that...if there were enough wood supply now we would already have a project for MDF," he confided. So, what is Mexico's biggest panel maker doing to try to shift the barrier across its road to progress? Apart from adding its voice to those of fellow producers calling for fundamental change in government policy covering the forests, it is involved in direct action to improve the situation. With hope turning increasingly to a possible solution through fresh plantation development in Mexico's south east region, a Rexcel subsidiary planted 10,000ha of eucalyptus in Tabasco state. The fast-growing trees are already beginning to reach maturity, today ranging from four to seven years old. But part of the long-term solution to the industry's supply problem is more fundamental. It requires a change in the mentality of a big section of the Mexican population towards sustainable exploitation of the nation's forest resources, believes Mr de la Hoz. In just one move to educate the population and stimulate reforestation, his company runs tree nurseries at its sites, which offer seedlings and technical help to local people wanting to plant them. Members of the community, Rexcel employees and their families and authority representatives are invited to take plants on the 'Dia del Arbol', or Tree Day, each year. The Zitacuaro site nursery, launched back in 1992, produces one million pine and cedar seedlings per year and has helped reforest 7,000ha locally since it started. Rexcel has already been supplied with new wood as a result, according to the chief executive. His company is developing a similar nursery in the more arid conditions at the Chihuahua plant, where it aims to grow pine seedlings for distribution, he told WBPI. There is one potential drawback to developing fresh wood resources in Mexico's more fertile south eastern states: panel producers, whose operations are concentrated in central and northern Mexico, face the added cost of hauling their raw material more than 1,000 miles from new plantations there. The Rexcel boss believes the sector should focus in the short term on growing more wood and accepts that it could take more than a decade for producers to relocate closer to any distant new fibre source.

Located in the dusty silver mining town of Hidalgo del Parral, deep in the heart of Mexico's big northern state of Chihuahua, Duraplay de Parral SA de CV, the 50-year-old former lumber company, has enjoyed strong particleboard sales across the US border in the past couple of years. It benefited from the booming US housing market and falling panel supply in the US and Canada, but, like other Mexican exporters, Duraplay has seen a slowdown this year due to the US market slump. As a medium-sized producer in a panel sector dominated by one big player, Mexico City-based Rexcel SA de CV with over half the production, Duraplay is focusing on particleboard and growing its value-added product range. This means selling more panels with melamine, finish foil and veneered finishes to niche markets in Mexico and the US. There is little doubt the US downturn means Duraplay will now feel growing competitive pressure from both local and North American board producers. Nevertheless, the Mexican producer is sure it can pick up increasing business from the country's powerful 'maquiladora' chain of assembly plants along the US frontier. "Traditionally, they [maquiladoras] bought board from the US mills. Now, they are buying from Mexican producers. That will be a growth market for us," said a confident Emilio Ayub Touché, president of Duraplay. The US furniture industry is certainly expected to continue feeling the heat of Asian competition. But the Asian cloud has something of a silver lining for the Parral company, according to Mr Ayub. "With all the changes in the structure of the furniture industry in the US, which was hit hard by imports from China, some [furniture] players are beginning to look to Mexico, located close by, for competitive costs," he told WBPI during an April visit. Duraplay is "betting on that", not least because two years ago the group went downstream itself, launching its own ready-to-assemble (RTA) flat-pack furniture operation on the US border in Ciudad Juárez. "It's the continuation of our strategy to roll into value-added business. We wanted to go downstream, adding to the chain of value," explained Mr Ayub. He admits that moving into a totally different market is a "challenging experience". Now, with the RTA sales growing slowly, the family-owned group is seeking an alliance to allow it to work with "an established company" in the business and get into the bigger market, he said. Duraplay, with a total particleboard capacity of 140,000m³/year, runs two lines at its Parral plant: one a 108,000m³/year Bison unit with a Dieffenbacher single-opening press producing 8x48ft standard thickness panels; and the other a smaller Mende line producing thin board. Located in the heart of Chihuahua, the producer draws its supplies of ponderosa pine from the mountain forests to the south and west of the state, which are still controlled by Mexico's traditional community-based 'ejido' system. Wood, mainly for the particleboard line, is trucked up to 250km from southern Chihuahua and part of neighbouring Durango state. Larger logs, used for plywood, are hauled up to twice that distance from Duraplay's log yards in the mountains of western Chihuahua. Only 15% of its particleboard output is sold as raw board as most goes through to the finishing process. Duraplay operates two Wemhöner melamine laminating lines, a Bürkle finish foil line, soon to be upgraded, and an Anthon cut-to-size system installed in September 2006. Value-adding includes cut-to-size and 30% of all its finished panels are melamine faced, according to operations development manager Ramón Castro. One product where Duraplay has enjoyed a healthy export market for its particleboard is 'bullnose' shelving for the US, which accounts for around 12% of total output. This market too has weakened with the construction downturn and the product is particularly price-sensitive, said Mr Castro. Although his company is not an MDF producer, it buys in the panel from Flakeboard in the US and laminates it for resale in its bid to add value to its business. In support of the group's RTA offshoot, and to bolster its laminating capacity, a second Wemhöner melamine line was installed in October last year. Another project will see finish foil production upgraded with the arrival of a new Harland foil laminator to replace the Bürkle equipment. Other planned investment includes upgrading the Bison board line's glue kitchen and blending section with Imal equipment by August this year. This is required because Duraplay, which supplies its own resin, cut resin emissions to meet market demand, explained Duraplay's technical adviser, Austrian Ewald Zucker. The panel maker is also a manufacturer of softwood plywood, directed at 'face grade' products as well as construction applications. Business is "tough and competitive" at present and Mexican producers are under great pressure from imports to find new ways to market the traditionally well-received ponderosa pine plywood. Little goes to waste at Duraplay where a trimming and squaring machine converts peeler cores to fence posts, for example. The Parral company, originally founded by a family 50 years ago, ran into financial difficulties in the 1990s and was rescued by Mr Ayub's family. The original family owners still has a stake in the business. Today, Duraplay compares itself with a newer particleboard player on the Mexican scene, Masisa Mexico SA de CV, subsidiary of the Chilean group Masisa SA. Masisa runs a 149,000m³/year particleboard plant to the south, in Durango state, and the two firms rank as medium-sized producers. As president of the Mexican panel makers' association ANAFATA, Mr Ayub is only too aware of the major challenges - not least the ever more serious national lack of quality wood - facing producers. Mexico's failure to protect and expand its forest resource over decades, and the lack of long-term security for tree plantation investors, have inhibited industry growth. One example of how sector development is being stifled is its inability to sustain a single world-scale MDF plant in a country where MDF/HDF consumption was above 300,000m³ last year. "The [fibre shortage] situation has not changed in the last few years. If anything, it has got worse," admitted the ANAFATA president. Looking longer-term, Duraplay itself is keen to expand its particleboard production and capacity and is not ruling out going into the MDF business when conditions are right, Mr Ayub told WBPI. For the time being though, any radical new plans for expansion by Duraplay seem set to remain on hold in today's climate of deep uncertainty about the future direction of Mexico's wood panel industry. Although there is a glimmer of hope for a potential breakthrough, with new plantation projects beginning to take shape in several states, even the most promising ones in the south will take some years to mature. Consolidation in the sector seems set to continue and Duraplay is content to pursue its current policy for now. "For the time being, I think our strategy should continue with adding as much value as possible and having very tightly targeted market segments," said the Duraplay president.