Challenges facing Iran’s particleboard industry

It is over half a century since the first particleboard production line, of 12,000m3 a year, was established in Bandar Chamkhaleh, Gilan province in Iran.

The existing huge quantity of forest and non-forest wood raw materials on the one hand, and ever-increasing demand on the other, have inspired the development of many different factories all over the country.

According to the Association of Iran Wood Industries Employers (AIWIE), in 2009 the number of particleboard manufacturers was 20, producing about 625,000m3. A further 250,000m3 was planned to commence operation by the end of 2010.

In terms of business conditions, the history can be divided into two main periods: The period of quasi-monopoly and oligopoly (1959-2000) and the period of beginning a new era in competition (2001 to the present).

During the first period, there were many negative repercussions. Firstly, with respect to a direct relationship between production and profit – there was a strong tendency towards more production. The main effects of such an approach have been over-depreciation and a huge loss of quality.

Secondly, for many years, the purchasing power of customers has played an important role in shaping the relationship between customer and manufacturer. For this reason, manufacturers have been largely dependent on a small number of customers for a substantial proportion of their business.

Thirdly, due to market conditions, manufacturers with mediocre, or even poor, managers made great profits.

The management style of most of those companies can be considered as ‘doorkeeper’ because of a shortage of higher education and training in different organisational levels, particularly among managers.

Reviewing the research literature shows it is poor in investigating and discussing challenges and threats facing wood based panels, particularly the particleboard industry.

A paper entitled Challenges and threats facing the particleboard industry in Iran, Fadaei 2005, investigated the main issues facing the industry, addressing more than 10 items and providing possible solutions. In fact, it seems to be the first serious attempt at a scientific approach in this regard in over 50 years.

One of the most important findings was the predicted crisis in the availability of bagasse during the current decade; there were many signs and symptoms of such a crisis which are now clear. On the one hand, the price jumping from five to 150 Iranian Rls per kg in around four years, and on the other hand decreased plantation of sugar cane leading to a shortage of bagasse, are clear signs.

The first Iranian conference on the supply of raw materials and the development of the wood and paper industries was another significant event, held in 2008.

During that two-day conference, over 100 papers and eight keynote lectures were presented.

The main topics were: sources of wood raw material; sources of non-wood lignocellulosic raw material; plantation of agrifibre (such as kenaf and agricultural residues like straw and bagasse); and modern technologies and processes in the wood and paper industries. It is important to say that about 25% of all papers were dedicated to plantation and imported wood.

Norouzi (2009) in another paper entitled Challenges facing the paper and particleboard industry and possible solutions investigated this issue, emphasising the shortage of wood as the most important challenge.

Challenges, threats
Due to a number of factors, the particleboard industry has entered a competitive position since early in the current decade. New competitors, such as Neopan Khalkhal, Neopan Pars, Neopan Momtaz Golestan, Neopan Fumanat, and Pooya Choob; imports from abroad, especially from Turkey; decreased forest resources; the price hike in raw materials; increased customer expectation; consumption-pattern shift; and modified existing production lines (like Sanate Choube Shomal, and Takhte Feshorde Shomal) are some of the most important issues.

These trends, together with the vital need to simultaneously improve quality, lower costs and diversify products, have brought additional challenges for the industry. Therefore we can easily call it a ‘transition phase’: moving from an oligopoly to a competitive situation.

An investigation into the changing nature of the market reveals the most important challenges and threats as follows:

The Institute of Standards & Industrial Research of Iran, ISIRI, is the sole organization that can lawfully develop and designate official standards for products, including wood based products. The standard criteria for particleboard are defined in ISIRI standard no 9044 Wood,Wood-based panels, Particleboards, Specifications which has been revised and updated over long intervals.

However, for many years this standard has been voluntary. Therefore the quality-control inspection techniques were based on company-wide quality procedures, combined with 100% inspections in grading stations, which are still used today.

Furthermore, scientists are unsure what the exact relation is between the physical and mechanical properties of particleboard and its visual attributes.

Since this standard became mandatory in mid-2004, this issue has had the potential to impose high costs on businesses, including the costs of: samples and tests; infrastructure; maintenance and calibration of measuring tools; destructive methods; and laboratory staff.

Environmental aspects
Most Iranian production lines’ technology dates back to the 1970s. During recent decades, in addition to being the dominant theme in most development plans, the quantitative and qualitative objectives caused companies to neglect environmental aspects so there are many environmental problems in the industry today.

Hazardous air pollutants, such as formaldehyde emissions from the process in gluing, forming and pressing stations and dust emissions, particularly from sanding.

In addition to waste water coming from specific sources (taps, toilets and gluing process), the dust collected from sanding has posed a serious threat to rivers.

Detergents or other materials (like soap suds, hydraulic oils, greases, UF resins, etc) are of significant importance in ground pollution. Then there are solid residuals such as waste paper, wood dust, ash, waste glass.

With energy for production, maintenance, heating, lighting, boilers, dryers etc, this is an energy-intensive industry.

Health and safety is another area to be addressed. Despite the relative automation of particleboard production, workers are exposed to injuries and work-related diseases – especially those workers involved in production and maintenance. While there are no precise statistics about health and safety in the workplace, according to reports from different factories, most jobs related to areas such as maintenance and production have benefited from the ‘Hard and harmful jobs’ law.

It is worth mentioning that, according to this recently-approved law, retirement is based on 20 years of working instead of 30 years in any age. Further, the following are just a few of several items: Physical factors – noise, vibration, light, electromagnetic fields – and excessive noise from drum chippers, ring flakers and sanders, excessive vibration from lift trucks and excessive heat and cold.

Chemical factors – mist, dust, fumes, smoke, chemical material, welding activities and coming into contact with chemicals.

Ergonomic factors include incorrect body alignment, repetitive movements, unvaried tasks, carrying, pulling and pushing of loads, inappropriate tools, job stresses and shift work.

Then there are biological factors such as virus, bacteria, fungus, protease.

Finally, several work-related incidents include: fire, falling from height (FFH), hazardous chemical materials, violation at the workplace and others.

Particleboard, MDF imports
According to the AIWIE, in the last Iranian year 1388 (March 21, 2009 to March 20, 2010), imports of particleboard totalled 35,278m3, worth US$9.1m – a 34% decline on the year before. That accounts for about 5.6% of production at the same time, whereas exports totalled 10,449m3, worth US$1.9m – a 60% decline compared to the same period, which accounts for about 1.6% of that production.

Imports of MDF totalled over 600,000m3, worth over US$93m. In the same period, MDF production was over 110,000m3.

During the first six months of the current Iranian year 1389 (from March 2010) the imports of particleboard totalled 18,630m3, worth US$4.5m – a 14% decline compared to the year before, whereas exports totaled 2,904m3, worth US$0.5m – a 51% decline compared to the same period. Imports of MDF totalled over 198,812m3, worth over US$66.5m.

All the above figures show that all imports are expected to increase in the coming years due to the higher domestic cost price. Meanwhile, wood raw material is increasing in price, and decreasing in availability, for many reasons (like the Forest Preservation Plan).

The consequences are well known and most particleboard producers have had great difficulty in obtaining sufficient wood at the right price. According to most estimates, the cost of wood accounted for about 60-70% of the cost price of particleboard so the cost of shortage is high.

Moreover, there has been a shortage of bagasse during the current decade; many signs and symptoms of such a problem are obvious now. In addition to the price jump, plantation of sugar cane has decreased. This has caused manufacturers of particleboard, MDF and paper to face production problems.

As an inevitable result of increasing product costs due to inflation, a decline in profit margin led to a decline in attractiveness of new investment in this industry. This necessitates the use of cost management.

Just as in other industries, economies of scale (EOS) are significant in the particleboard industry because a general trend towards bigger and better-equipped facilities is clearly advantageous. Unlike most other countries, to establish new production lines with a capacity of at least 700m3 a day, Iran has received relatively less attention to the concept of economies of scale. Furthermore, there are a large number of small factories employing fewer than 10 people, typically each with a capacity of less than 50m3 a day.

Other challenges
The list is quite long, and there is still need to address some other challenges faced by producers. Some of the prominent ones are: undesirable economic conditions in CIS and middle Asia countries as major target export markets for Iran; a 180o turnaround in buying and selling patterns; using old and almost obsolete technology needing renovation; big fluctuations in the exchange rate in favour of the US dollar; decreased purchasing power of people, resulting in a decreased rate of growth in panel consumption.

Realising these challenges and threats, some possible solutions seem beneficial. Needless to say, the importance and topicality of these solutions may vary from one company to another, thus it is desirable to investigate in the fullest possible detail through a managed programme of work, such as:

• Employing managers capable of leading the company in the right direction, even in a crisis situation, should have greatest priority

• Systematic analysis of the current situation of companies to identify strengths, weaknesses, threats, and opportunities

• Lowering cost prices by reducing the costs relating to cellulosic and lignocellulosic raw material.

• Expertly-conducted analyses of value chain links from the forest to the customer, in order to redirect the development path toward the high-value-added links.

• Investment in industrial plantation of fastgrowing species such as eucalyptus and poplar, as alternative sources of forest wood

• Continuous quality improvement (CQI) in accordance with the standards’ requirements and customers’ expectations.

• Applying statistical process control (SPC) techniques in all stages of production

• Implementation of environmental management system (EMS) standards

• Implementation of quality management system (QMS) standards

• Implementation of health & safety management system standards

• Applying energy management system (EMS) approaches

• Finding more efficient selling mechanisms

• Investigating the necessity and attractiveness of various strategies, including diversification strategies.

• Conducting market research and having a strong presence in the market, taking into account the voice of customers

• Focusing on outsourcing routine activities

• Selling unused assets and non-circulating inventories

• Modification of purchasing policies, revising order quantity and reordering point

• Involving personnel in decision making

• Providing a climate in which creative and innovative ideas can bloom

• Delegating responsibility for decision-making to expert teams; and that of decision-taking to top managers.

Conclusions and Suggestions
In recent decades, Iran’s particleboard industry has been dealing with various formidable challenges which needed to be overcome. It is hence necessary to identify the major challenges of this field before figuring out how to deal with them.

This study shed light on some of the important challenges. Further, a number of possible solutions which seemed beneficial have been proposed.

But there are still some interesting issues to consider. What are the impacts on the particleboard industry of Iran’s joining the World Trade Organisation (WTO)?

What are the impacts of the ‘Subsidy Reform’ plan? More research needs to be done on what happens when such circumstances occur.

What are effective strategies to follow in order to exit from the current condition and what’s the best way to prioritise those strategies?