New lines go to new places

This survey, covering North America and Europe to end-2006, contains more than 70 modifications and additions to the listings published last year. The new information received has had an effect on the previously forecast capacity change for 2006 and 2007; for North America and the EU15 countries this has not been positive. Some information was received too late for inclusion in the survey and this is true for most years. It is one of the reasons why the starting point for capacity change, the mill listing, is given for end-December of the year prior to publication; 2007 thus becomes a forecast year.

A major comment from last year was the ongoing and increasing number of pressures on mill operations and management time. 2006 and the first half of 2007 have met or perhaps surpassed predictions. US housing is going through a torrid time and there is great pressure on interest rates. As reported in the MDF survey (issue 4, 2007, p26), the US panel industry is facing some difficulties with the CARB (California Air Resources Board) decision and the Boiler MACT (Maximum Achievable Control Technology) court ruling (also see issue 4 news, p5). The more mature industries of North America and the EU15 have seen capacity shrink again in 2006 after 2005. The contrast between these industries and those burgeoning industries in eastern Europe, Russia and Turkey is even more marked. Returning to the theme of modifications to the mill listing, even though EU15 capacity can show an apparent growth of 0.5% in 2006, this is after net upward revisions to existing capacity which ought to have been shown in 2005. This growth, therefore, is illusory and it is very likely that actual capacity was static at best. There are other published sources of capacities of individual mills or national industries. It should be reiterated that those readers making comparisons with the Composite Panel Association of North America should be aware that the CPA gathers data on just under seven days per week, 52 weeks per year. This tends to show US mill capacities 10% higher than the equivalent for the rest of the world. Much of the WBPI survey data derives directly from the North American mills but they increasingly provide similar data to that submitted to CPA. North America The North American particleboard industry, and in the US in particular, has developed in some contrast to both MDF and OSB. The last five years have seen a net reduction in capacity to levels barely above those prevailing at the beginning of the 1990s. From 2000 the North American industry shifted northwards as Canada expanded capacity sharply. However, in the last two years the Canadian particleboard producers too have suffered setbacks. During 2006 North American capacity fell 3.2% (412,000m³) after suffering a 6.8% decline in 2005. Since the beginning of 2005, a total of 1,347,000m³ of capacity has closed and this includes the temporary closure of one line at Sonae's Lac Megantic mill. The most significant closure of the year was the GP Gaylord Mississippi mill at 478,000m³ capacity. However, Green Tech, Louisiana and Rodman Industries, Wisconsin also closed their doors during 2006. This shows the US as contracting the most during the year, particularly as the Canada situation was ameliorated by the opening of the replacement line (after fire) at Uniboard's Sayabec site. The destroyed line was shown in the listings as 300,000m³ but references have been made to the new line being capable of 380,000m³ per annum. Readily apparent was that during 2006, prior to the housing market downturn, particleboard was in relatively short supply. Despite this, the sale of the Weyerhaeuser panel plants was completed to Flakeboard and Roseburg Lumber acquired the remaining GP mills., with the exception of Gaylord. Roseburg Lumber is now the largest particleboard producer in North America, owning six mills and 2,288,000m³ capacity (18% of North American total). Flakeboard is second at 1,600,000m³ per annum and Temple Inland is third with 1,131,000m³. Between them, these three companies operate about 41% of North American capacity. Excluding OSB, Flakeboard owns the largest share of panel production capacity in the region. Perhaps in response to the tight market situation, or as new owners of American mills, Flakeboard reported a series of capacity increases for the survey. Table 1 summarises the number of mills and lines in North America and Table 2 shows that, temporarily, average line size in the US exceeded that for Canada in 2006. Not unexpectedly, North American per capita capacity is less than half that for EU15 countries, at 34.1m³/1000 and 83.6m³/1000 respectively. Furthermore, despite the wide range of population densities and economic development, the 'Other Europe' region, including Turkey and Russia, achieved 52.3m³/1000 by end-2006. Other events - or in some cases, non-events - during the year included: * No change to the reported Mexican capacity even though it was believed Rexcel would expand. This is probably delayed until 2007; * An upward revision to the Canpar capacity (which was perhaps understated in the last published listings); * The announced closure of Columbia Forest Products' Hearst mill. Later CFP announced that they would be producing soy-based resin particleboard there; * The acquisition by Hambro Forest Products of Broyhill's particleboard mill at Lenoir, North Carolina (but not until after December 2006). The EU15 Countries It would seem that EU15 capacity grew by only 0.5% during 2006 (182,000m³) but a number of upward revisions to individual mill capacities were received during the survey which were also applicable during the previous year. The listings include these revisions and, therefore, actual capacity during the year has, most likely, declined. It is entirely possible that capacity in the region, which was the engine room of the world particleboard industry, has declined in two consecutive years. It is also possible that some mill capacities (including in Eastern Europe) remain understated. This indicates that EU15 remains a net exporter of particleboard which would put production at or around the recorded capacity. Although the EPF reported significant stock reductions in 2006, the gap between production and capacity is so small as to support the premise that operating - as opposed to nameplate - capacity is higher than shown in the listings. Even so, 2006 was the sixth year that EU15 capacity remained below 2000 levels. Germany and Belgium account for most of the decline, which is more remarkable given the relatively buoyant economic conditions. Space does not permit a review of conditions in specific end-use sectors, nor the impact of competing wood and non-wood materials on particleboard usage rates. The new line for Spain in 2006 shown in last year's survey was an error but the impact of the closure at Norbord, South Moulton, was less significant than forecast. Overall, average annual line capacity was only very slightly greater than 2005 at 234,000m³. However, the comparison with the average size of the new mills/lines in all of Europe for the 2005-2008 period, of 543,000m³ per annum, is revealing. Table 3 summarises the number of mills and lines for the EU15 countries. Other Europe Capacity growth as shown in the listings was 1.5% over 2005 and significantly below the 20% growth reported in the previous survey. There are several explanations: * The delay in some projects until 2007 * Cancellation of Turkey's Orma project * The downward revision of current Turkish capacity as a result of new information received. Admittedly the downward revision in Turkey could have applied in 2005, which would have afforded net growth in 'other Europe' closer to 7%. There were, however, upward revisions to capacity for existing mills in Norway, Slovenia, Poland and Romania. Two mills have come on stream in Russia - Egger and Pfleiderer - for an aggregate of 750,000m³ per annum. More curiously, a new country and mill can be added to the lists which were unrecorded hitherto, namely Spik Iverica in Serbia, now owned by Fantoni. The number of mills and lines are summarised by country in Table 4. Both the author and the editor of WBPI will concur that Turkey has been a bit of a blind spot in the past. The current listing for Turkey shows a number of additions and deletions to the mills in operation and revisions to several capacities. The effect has been to revise downwards Turkish capacity from an estimated four million m3 per annum to 3,122,000m³, which is still a significant amount, 44m³ per 1000 capita and higher than North America. Kastamonu is the largest producer in Turkey with an aggregate annual capacity of 1,125,000m³. It also owns a mill in Bulgaria. A further project in Russia has not gone ahead. Starwood is the second company in Turkey, with all other operators of modest size only. Those who have read our 2007 MDF survey will recognise that Kastamonu and Starwood are major players in that market too, with new mills planned. The previous confusion with new plants is explained by understanding that there are three brothers in the Yildiz family and each owns separate panel companies - Yildiz Entegre, Yildiz Sunta and Starwood (Yildiz means "star" in Turkish). The confusion was compounded by the fact that the General Manager of Kastamonu is Mr Yildiz (no relation!), whom we thank for kindly giving his time. The particleboard (and MDF) market in Turkey is driven by a young, dynamic population of 70 million, in about 25 million households. In addition to natural growth, it is estimated 10-15 million homes (flats and houses) require rebuilding or significant modernisation. Annual housing starts are estimated as 5-700,000 units (of which about one-third have permits); the Turkish furniture industry is booming. As the aforementioned panel producers have developed new plants over the past few years, the older, single-line companies have come under considerable pressure; four of the remaining smaller companies on the list are known to be in financial difficulties, which provides an impetus for the larger companies to expand further. The new Orma project reported last year has been shelved as the company's assets have been frozen and it could not invest in the new Siempelkamp line. There was more success for Dieffenbacher, when its sale of a particleboard line to Teverpan ran into difficulties and was taken over by Kastamonu. The Turkish industry is not without its problems despite high demand and firm prices - there can be few panel industries which are, and will be more in the future, so reliant upon imported raw material. Future Capacity Changes In the EU15 and North America between 2007 and 2009, there are only five new or rebuilt lines, two of which result from the recently announced acquisition of the ex-Hornitex lines by Sonae/Glunz in Germany. For North America there is only one new particleboard line - Sonae Lac Megantic - but that is a replacement for an existing line. It suggests there is no real gain since 2005 in North American capacity. Some of the large operators of multiple mills are announcing capacity creep which has been calculated as +1.5% of 2006 capacity. Table 5 summarises these changes. Capacity in the US will be hardly changed from 2006 and still below 2005 levels. Canada enjoys a rebound in 2007 but there is only some forecast capacity creep in 2008 - and no new lines. The dilemma for the North American industry is that numerous mills are intrinsically old and are now faced with investments to meet environmental regulations, on top of investments in efficiency. At a time when demand is affected, raw materials are constrained by reduced logging in Canada and reduced lumber production - producing less residues - in the US, while Mexico has its forest harvesting difficulties. It is widely understood that tight raw material supply is further under threat from competitive users in the energy business, who can afford to pay more. There are four strategic options for the industry and examples exist of producers utilising all of them. These are to refurbish, rebuild, close or sell off. Not many are considering the rebuild option at this time. Among the EU15 countries there will be only one new line in 2007, at Egger's mill at Hexham in the UK. That 726,000m³ per annum gain is offset by its intention to close the existing lines of 480,000m³ per annum. Norbord in England and Puhos in Finland will also close lines. See Table 6. At best, over the next couple of years, annual capacity creep will be +1%. Thus EU15 capacity will record a net gain in capacity of 1.3% in 2007 and, together with the long-awaited Kronospan Bischweier expansion as well as modifications at Horn by Glunz, an increase of 2% in 2008. 'Other Europe' will add 18.4% to 2006 capacity in 2007, or just under three million m³, with a further 2.5 million m³ in 2008. Around 1.9 million m³ will be located in Russia and 970,000m³ in Turkey. Lithuania, Slovakia, Ukraine and Romania will enjoy large new mills and a new mill by Kronospan for which the location was not announced at the time of writing. The 5.9 million m³ of new capacity in the region continues to exceed the aggregate of all new projects in the world. Interestingly, Kronospan accounts for 3.4 million m³ (57.6%) of projects in 'Other Europe'. Boosted by these developments, the combined North American/European capacity growth will be 6.9% and 5.1% in 2007 and 2008, respectively (see Table 8). The share for 'Other Europe' rises from 26% to 32% by 2009. This demonstrates effectively the approach to the industry's problems adopted by the Europeans; find a fifth option - build somewhere else! Explanation of Terms To assist readers in understanding the survey findings and to interpret the shorthand terms used (necessary to prepare compact listings), some explanations and definitions of the terms used are provided here. Mill capacity is, where possible, reported according to the operators' own estimates. Where we have no estimate, there could be a reference list with a daily capacity. This has been grossed up by 330 days to provide annual capacity in thousands of cubic metres (m³) per annum. It would seem that the US panel association is using a slightly different measure of operating days which adds about 5% to their capacity compared with European mills. Occasionally, we have estimated from press specifications alone. We accept there will be variations under these circumstances and apologise in advance to any mills which feel their potential output has been misrepresented. It was never our intention to do so. We would be pleased to hear directly or via the website with a more accurate figure. Where information is available for each line this has been provided, but in some cases we have provided details of more than one line per mill but published only the mill's total capacity. The country total capacity is based on the sum of the capacities we have provided. Where there are too many gaps, the country total according to other sources has been used and thus may not be a sum of the figures presented in the tables. One of the aspects of the survey is that few sources agree exactly as to capacity. Nevertheless, the data published here is within 10% of most other sources. Capacity changes have been taken directly from the survey results according to the mills' own forecasts, or from published announcements of new lines available to us. It is possible that the future capacity changes are not entirely reliable because, firstly, full information regarding modifications to existing lines is not available, and secondly, we might have missed some of the new announcements or closures. We hope to correct the listings in the subsequent surveys on a rolling update basis. We would be pleased to hear from any manufacturers not represented above. John Wadsworth is the managing director of Intermark. Based in the UK, he has been researching and consulting in panel products globally for more than 25 years. Contacts: Tel. +44 (0) 1376 501565, Fax: +44 (0) 1376 501557, email: inter.mark@virgin.net