Nowhere is the Brazilian market’s very good health more apparent than in the MDF segment, where Brazilian producers, among them particleboard suppliers, have lined up to announce a string of fresh MDF capacity expansion projects.

Even the mature local market for particleboard showed signs of new life late in 2006. It was stimulated by a buying spree among better-off low income consumers, by rising MDF prices and by a clever image makeover focusing on the ‘new-look’ particleboard, now relabelled and sold as ‘medium density particleboard’ or MDP.

However, dark clouds are gathering on the horizon of this glowing panorama as Brazil’s panel makers face a fight to secure adequate raw material supply to feed their ambitious industrial schemes. Growing competition between forest products groups and biofuel crop farmers for scarce land in key states is threatening to limit the latest panel mill expansion.

Panel manufacturers are trying to reinforce their own forest holdings, planting and firming up supply contracts, chiefly in the states of Paraná, São Paulo, Minas Gerais and Rio Grande do Sul.

Last year, two particleboard suppliers revealed they would each venture into MDF production early in 2008. Berneck SA has ordered a 340,000m3/year Siempelkamp ContiRoll press line to install at its plant near Curitiba in Paraná, while São Paulo-based Satipel Industrial Ltda plans to follow with the launch a 300,000m3/year Siempelkamp line at its plant in Uberaba, Minas Gerais state.

Further south, a relative panel sector newcomer, Fibraplac Chapas de MDF Ltda, was set to start up its second 180,000m3/year Siempelkamp line in Glorinha, Rio Grande do Sul state, at the close of 2006.

Meanwhile, the industry was watching for the Chilean group Celulosa Arauco y Constitución to announce plans for a second MDF line in northern Paraná and waiting for a second Chilean group, Masisa SA to confirm its outline for a new 350,000m3/year plant, also in Rio Grande do Sul.

Arauco, which aims for 50,000ha of plantations in Brazil to feed future growth, has been in joint venture talks with pulp/paper giant Stora Enso over forest and a sawmill in Paraná which Stora Enso just bought from International Paper.

Then, the bombshell ! Brazil’s leading panel maker, Duratex SA, sprung a surprise by unveiling plans to launch a big 500,000m3/year MDF line beside its pine-based unit in Agudos, São Paulo state, by 2009. It is in this region that forest land resources have been under greatest pressure.

“We didn’t know Duratex would have enough wood in the state to produce that amount of MDF. It was quite a surprise !” admitted Roberto Sczachnowicz , Satipel’s commercial vice-president.

Such a large capacity addition threatens to destabilise the Brazilian MDF market, but other producers feel sure that experienced Duratex will not want to “destroy value” in the market by flooding it with MDF from 2009.

Players are confident that, within a couple of years, a market, currently growing by up to 300,000m3 each year, will surely have absorbed all the new capacity the latest schemes are adding. There may be some adjustment time in 2009 when the big new Duratex line is launched, and some excess capacity, but MDF’s appeal will see the slack soon taken up, according to Mr Sczachnowicz.

Early in 2007, MDF capacity in Brazil stood at 1.7 million m3/year, while particleboard remains strong with around three million m3/year in the market.

The Brazilian industry, determined to optimise the use of its limited base raw material, is making a widespread switch from pine to eucalyptus to increase its fibre yield.

Satipel is just one producer committed to changing species in its valuable forest plantation resource in the state of Minas Gerais. When it first came to the state it acquired an area of some 51,000ha of largely mature pine forest which it has been cutting and replacing with eucalypt.

Following the lead of Brazil’s top eucalyptus-based panel manufacturer Duratex, Satipel was keen to maximise yield and has concluded from market research that customers are less concerned about the species used than with the quality and price of the panels.

Brazil’s panel manufacturers’ association ABIPA, in its latest annual review, predicts that the sector will see a growth spurt up to 2010 with proposed investments in the next three years totalling some US$800m. That includes a plant capacity increase of around 40% and the expansion of forest plantation.

Last year, the organisation’s director Rosane Donati reported that MDF capacity remained stable over the past three years but, based on new projects expected by 2010, more than one million m3/year should be added to producer capability in the coming three years.

Brazilian consumption of the board, which increased by just 2.1% during 2005, was expected to soar by more than 20% with imports picking up the extra demand, she said.

Listing new capacity projects, the ABIPA report included a new MDF plant being considered by Arauco and a scheme being studied by Satipel to modernise and duplicate its 200,000m3/year particleboard multi-opening press line at its southern mill in Taquari, Rio Grande do Sul.

Overall, panel production in Brazil is estimated to grow from around 4.3 million m3/year in 2006 to some 5.2 million m3/year by 2009. Much of the growth will come from MDF, with its capacity set to soar to between 2.7 and 3.5 million m3/year by 2010.

But the future growth and success of the panel industry in South America’s biggest country now depends on how it resolves the current raw material shortage.

Panel makers have been experiencing the ill effects of dwindling forest reserves for several years, resulting from a period, decades ago, when the federal government halted its tree plantation incentive scheme. Few new plantations were created and now there is a lack of mature wood to feed today’s huge demand.

This problem has been exacerbated in recent months by the global energy crisis and the worldwide search for ‘eco-friendly’ biofuels. The federal government in Brazil is promoting the growth and use of biofuels such as biodiesel from soya beans – and sugar-based bioethanol. Brazil also recently signed up to a bilateral agreement on the development of ethanol use.

The result has been a vast expansion in sugar cane and soya cultivation across Brazil, leading to a squeeze on available land and a hike in its price for other potential buyers.

Rising natural gas prices in Brazil, and the ‘green revolution’, have added to the raw material problems experienced by the forest products industry. Power generation companies are switching to biomass for their fuel, putting pressure not only on the limited forest resource, but also devouring valuable supplies of waste wood.

“Today, with the growth of new power generation plants using biomass, it’s not easy to buy waste [material] like pallets from the market. The cost of gas has meant companies like Cargill [agro giant] burning biomass for drying, for example soya,” explained Pablo Rossler, production director of MDF producer Masisa do Brasil Ltda in Paraná state.

The latest difficulties mean cost-conscious panel companies in the worst-hit states are faced with the uneconomical prospect of shipping wood from ever more distant forest locations. For firms in Paraná, that means bringing more material between 200-300km from, say, its southern neighbour Santa Catarina state. In Masisa’s case, cost savings can be made by using rail.

Another new dimension to the complex panel industry picture is the rise in the number of Brazil’s plywood companies planning to enter MDF production. At least two of them are said to be ready to take advantage of low-cost Chinese technology to launch MDF plants with lines of more than 100,000m3/year each.

The traditional barrier to entry into the hitherto rather exclusive Brazilian MDF producers’ ‘club’ may no longer be what it once was.