Western European economic growth is expected to be less than 2%pa and will struggle to recover ground lost during 2008/9. Subsequently, the economic recovery is not likely to return to pre-crisis levels before 2012. Although eastern Europe will recover more quickly, by more than 4% a year, there are considerable differences between countries.

North American economic activity is expected to recover from the 2008/9 drop relatively quickly, as growth outlook is above 2%pa. However, despite positive economic direction, specific sectors, eg construction, are not expected to revive fully by 2015.

Brazil will continue to lead South American economic development, with a growth outlook above 4% per annum until 2015.

Asia will remain the growth engine of the global economy, growing in relative importance, with China and India above 6%pa until 2015.

Global panel markets
How does the economic growth link with panel markets? The main market drivers influencing demand are furniture, flooring and construction and these tend to follow economic development.

The global particleboard market contracted by 3% in 2007/8 and a further 9% during 2009. The market is expected to recover from the dip, showing a 5% compound annual growth rate (CAGR) until 2015. The growth is expected to come from developing regions, while furniture making will continue under pressure in North America and west Europe.

The MDF/HDF market grew up to 2007, with annual growth of almost 15%. Laminate flooring, and further penetration across furniture and construction sectors, have been the main drivers for high growth compared to other panels, such as particleboard. The market experienced a minimal dip and is expected to continue growing by a CAGR of 10% until the end of the forecast period. Developing regions will remain the main growth areas, while North America and western Europe are expected to grow modestly, driven mainly by laminate flooring.

The plywood market felt the most severe downturn as the global market dropped by 8% in 2008 and by a further 6% during 2009. Before 2007, the market grew by 5% and is forecast to recover, albeit more moderately, by just over 2% annually until 2015. Main growth areas will be Asia and the Middle East, while moderate growth can be expected in eastern Europe and stagnation in western Europe, North America and even South America.

Global panel surfacing
The wood based panel surfacing market is heading in a new direction. The industry sector in the developed world needs to focus on consolidation, capacity rationalisation and performance improvement initiatives.

Rationalisation will require not only managing inefficient capacity but also realising value through the transformation of traditional business models towards horizontal integration into other value chains (for example bioenergy and waste management) and product innovation. In contrast, opportunities for greenfield investments exist in emerging markets, but raw material procurement and the establishment of supply chains will be the main challenge. The raw material, semi-finished and finished product flows will change (more complex, global, longer distances) and will create the need for new supply chain concepts.

Global wood based panel surfacing material demand is likely to grow by 3% per annum from the current 12bn m2 to 14.7bn m2 in 2015. The traditional markets in western Europe will experience a slowdown, while North America will stagnate, hence the main growth will stem from developing regions.

Low pressure melamine (LPM) is the main panel surfacing material and historically, the demand grew by a CAGR of 4% and is forecast to continue at 5%pa, reaching a 45% share of the analysed global surfacing materials by 2015. Low pressure melamine has mainly been substituting veneers, but also thermoplastic foils, laminates and liquid coatings.

The paper foil market has shown a modest CAGR of 2% and is expected to recover by 3%pa over the forecast period, holding its 15% share of global surfacing materials by 2015. Veneer and thermoplastic foil substitution will be the main growth drivers.

The laminate market has grown moderately, by 2%pa, and is expected to continue at a similar pace, keeping its global share of less than 10%.

The thermoplastic foil market has been relatively stable, growing by less than 1%pa, and a similar future trend is expected. Its global share is likely to be below 5% in 2015. Thermoplastic foils are in a substitution battle with LPM and paper foils in 2-D applications, while in 3-D it is mainly with liquid coatings.

Liquid coatings have shown a healthy historic CAGR of 5% and similar growth is expected after the downturn.

Business cycle assessment
The above view is based on Pöyry’s proprietary modelling tool, where the GDP scenario (based on IMF), construction output and furniture production are forecast using macro-economic modelling. This, in turn, is translated into demand for panels, which subsequently links to the demand for surfacing materials used on them. The outcome is the surfacing material demand outlook.

Conclusions
Based on the macro-economic outlook, the panel surfacing sector will recover, but some fundamentals will change – new demand centres will emerge in developing regions, while substitution and innovation will be the main success factors in traditional markets.

Western European and North American panel demand, and subsequent demand for surfacing materials, will stagnate and recover slowly, or even decline in certain segments.

Both regions have been affected by low-cost furniture imports, which influence domestic demand. Innovation and new product development will be the key differentiators for producers in these regions. The absolute volumes, though, will remain high and the markets will remain of key importance for many suppliers.

The main organic growth for both panels and surfaces will stem from developing regions (ie South America, eastern Europe, Middle East and Asia).

Low pressure melamine is the leading surfacing material and this is very likely to continue, supported by product development and further penetration of laminate flooring.

So, the balance is shifting – new investments are likely to follow new demand centres, while operations in traditional markets will consolidate and focus on improvements that maintain competitiveness.

These are the key findings of the recently published report The global panel surfacing business – economic downturn, restructuring and new trends by Pöyry Management Consulting.

Authors: Dr George Goroyias, Mr Tomi Hartikainen, Mrs Ania Krolak, Ms Lauma Kazuša,

For more information visit www.poyry.com.

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