Works of art

6 October 2008

Chilean brothers Horacio and Rodrigo Fernandez and their company Polincay have introduced a breath of competitive fresh air to Chile’s panel industry, for years dominated by two giant national groups.
In little over a decade, Polincay became a leading MDF mouldings exporter to the US, Chile’s top flush door manufacturer, and is now South America’s first producer of MDF panels on a Chinese-built line.
After challenging Chile’s giants Masisa SA and Celulosa Arauco y Constitución SA in the formerly lucrative US MDF mouldings business, Polincay this year launched its first MDF plant.
Conscious of their company’s reliance on its giant competitors for supply of the MDF raw material for its mouldings, the brothers finally decided they too would have to get into the panels business.
A team of 50 Chinese workers spent eight months assembling a 150,000m3/year line in the isolated southern Chilean community of La Unión. The modified line is one of only two supplied to foreign panel makers by the firm Shanghai Jiecheng Baihe Woodworking Machinery Co Ltd. The other was to Azerbaijan.
The new plant started up in January 2008 and by June, when WBPI visited Polincay, MDF output had reached 50% of capacity. The unit is due to achieve full capacity by this November according to the firm.
Polincay’s MDF line is part of an ambitious integration project which includes an existing sawmill, supplying up to 100,000m3 of finger jointed mouldings annually, and the addition of two Chinese low-pressure laminating lines, each with a 36,000m3/year capacity.
In addition, Polincay expects to launch a Chinese-built thin MDF Mende-type line in La Unión next year.
The meteoric rise of the youthful Fernandez brothers in the wood products industry began in the 1990s. While Rodrigo (43) had his own successful graphic arts business, Horacio (48) was a manager at a Chilean construction firm.
There, from simple solid wood picture frame mouldings, he developed new pre-finished MDF mouldings, US exports of which grew rapidly from 1993. Two years later, Rodrigo and Horacio jumped at the opportunity to buy the wood products operation when the parent group offered it for sale.
Polincay enjoyed several years of booming US export sales of its quality primed mouldings, although competition from the Chilean giants, and from US producers, began to hot up. In 2000, the brothers also set up a flush door making operation in Santiago which now manufactures some 80,000 doors per month.
But then came 2005, and, with the US market downturn and export prices plunging, Polincay found its mouldings business squeezed. Panel volumes supplied by its big competitors were being restricted, leaving the small company unable to fully service its North American customers, the Fernandez brothers claim.
It was then they finally vowed to invest in their own panel production. “MDF volume was not really sufficient and we were losing customers, and there was no other way [forward].
“Now, we can retain the confidence and trust of our customers that we will still be in the [mouldings] business when the market gets better,explained Rodrigo Fernandez.
But he and Horacio faced a steep learning curve. They were not only launching their first panel manufacturing line, but using technology from China never before operated in the region.
Keen to select the best possible MDF line, but with no background in panel making, he and his brother hired a plant manager with exceptional experience.
Victor Maruri served 25 years with Masisa, the region’s top panel manufacturer. He managed both particleboard and MDF plants for the group in Chile, Argentina and Mexico and was well placed to choose and set up the new line.
After rejecting the option of buying secondhand, the brothers and Mr Maruri went to China where they visited several machinery suppliers including Suzhou-based Sufoma Machinery Co Ltd, Shanghai Wood Based Panel Machinery Co Ltd (SWPM) and Shanghai Jiecheng Baihe Woodworking Machinery Co Ltd.
The Chileans viewed a number of lines from each firm, operating in China. Although Baihe had little export experience, Polincay found it easier than the other suppliers to deal with. There, they could talk to engineers and top executives as opposed to just sales people, and Baihe was more flexible over essential line modifications, recalled Mr Maruri.
For its line, Polincay required the addition of a chip washer, additional green chip silos and a comprehensive control system. The Chinese line had a limited Siemens control system, but Polincay’s plant manager preferred to expand this using the more familiar Allen-Bradley system, he recalled.
The deal was finally clinched, when Baihe agreed not only to supply its equipment, but also to modify and assemble the line in Chile and bring it to start-up. For that, Polincay was to pay just US$12m, said Mr Maruri.
A further US$8m had to be invested at the 5ha La Unión site on plant foundations and building construction, much of which was handled by a Chilean building firm.
During line construction – from March to December 2007 – materials for the plant, from pipework to the line itself, were shipped across the Pacific from China.
Polincay made novel arrangements in rural La Unión to accommodate the big team of Chinese Baihe and sub-contract workers employed at different stages of construction. Apart from providing a small house near the site, Polincay hired six big shipping containers, specially converted into living quarters complete with windows, bathrooms and bedrooms!
Communication proved difficult as few of the Chinese even spoke English, let alone Spanish. But Polincay executives avoided the need to translate via English by enlisting the aid, as interpreter, of a Chinese who had studied Spanish in Colombia.
Polincay began its first 100% eucalypt MDF panel sales to Chilean customers in April this year. Earlier output was dedicated to its mouldings business. In June the company exported its first board to Mexico and Costa Rica.
“At present, because of the bad situation in the US market, we are selling board to other customers in Chile and abroad...Chilean customers are pleased they have greater market choice since Polincay’s start-up. The market was dominated by the two big groups,Mr Maruri told WBPI.
The Fernandez brothers are confident they can exploit a number of fresh
markets for laminated MDF across their region, including Brazil, Peru and the Caribbean states.
The Chinese MDF line, bigger than Baihe’s standard equipment capacity, has a 15-opening press.
When the line reaches full capacity, Polincay still aims to devote half its MDF output to mouldings, with most of the rest dedicated to melamine faced panels. Both low-pressure lines, supplied by Xinxieli (Suzhou) Enterprise Development Co Ltd, were up and running by this August.
“What we’re trying to do here [at Polincay] is to focus on added-value business. That’s why we’re aiming to produce 5,000m3/month of melamine covered MDF board,explained Horacio.
With their first MDF line now in
operation, the brothers are focused on the project’s next stage. But, it is clear they face a major new challenge in realising their original plan for the Mende-type thin MDF line in the current economic
climate.
Although the La Unión site has much of the infrastructure required for a second panel line, and Polincay has agreed in principle that Baihe should supply it, the machinery price has soared since 2006; Polincay has estimated that it will need to find around US$15m to cover the cost of installing the second line.
Chinese suppliers faced with the rising cost of steel and other raw materials, and reduced government export subsidies, have hiked their machinery prices in the past two years. If Polincay was purchasing its first MDF plant today, the cost would have almost doubled, the brothers estimated.
In June, escalating prices meant Polincay could not possibly still include the Mende line in its total project budget of US$40m; spending on the sawmill, MDF line 1 and laminating already totalled US$32m.
Horacio and Rodrigo Fernandez concluded they would need to find a foreign industry partner, willing to share the burden of installing the thin board line. Polincay has already attracted financial investors from Chile.
When WBPI met them, the brothers voiced optimism that the all-important US market was showing clear signs of recovery. “We are confident of future growth and we are now waiting for the market to improve a little more and to find suitable partners to allow Polincay to proceed with this project,Rodrigo said in June.
Polincay plans to produce 3-5mm thick MDF panels primarily for use in its doors business. Currently, not enough thin board is being manufactured to sustain this demand.
After that, the firm will sell its Mende product to third party operations for use in such applications as furniture drawer bottoms, according to Mr Maruri.
Other applications may include wainscot room mouldings and finish foil
covered panels for the Central American market.
Polincay, which runs its door and mouldings plants on the outskirts of the Chilean capital Santiago, located its sawmill and panel units so far south in La Unión to take advantage of available wood resources.
Forest plantation in Chile’s eighth Region of Biobio, inland from Concepción, is dominated today by the country’s two big forest product groups. But in the 10th Region of Los Lagos, there are ample supplies of eucalypt forest, grown in anticipation of a Japanese pulp mill which never materialised.
Today, there are around 15,000ha of eucalypt forest plantations on small third-party land holdings within 100km of Polincay’s La Unión plant. Growth rates at this latitude are good, at about 25m3/ha/year, yielding around 350,000m3/year, according to the firm’s forestry manager Francisco Gallardo.
In Santiago, Polincay’s mouldings plant is an impressive operation. Despite the current cutback in US demand, it continues to work with one shift at almost 70% of capacity. The plant is seeking new markets and has begun to make headway in Australia, among other countries, according to Pedro Laneri from the export department.
The plant runs two MDF strip cutting lines, together capable of turning out 150m3/day; five moulding machines; five independent paint priming lines and three integrated moulding, painting, drying and sanding lines.
Polincay manufactures MDF mouldings ranging in thickness from 9-30mm, all pre-finished for the market. The products are exported from the port of San Antonio near the Chilean capital, whereas panels sold abroad are shipped via the southern port of San Vicente.
Polincay’s nearby doors plant has a capacity of 1.5 million flush doors/year. Its output is divided into two sections – standard doors and special ready-finished made-to-order doors.
Apart from their industrial interests, the Fernandez brothers run a Santiago art gallery where they are helping to promote the wider recognition and celebration of the work of Chilean artists.
So devoted are they to this cultural cause, that in 2004 they sponsored the decoration of Santiago metro station with four giant colourful murals created by Chilean artist Rodolfo Opazo. A copy of one of them is displayed in their company’s reception.
The brothers’ passion for art is evident even to visitors to their Santiago plant offices. The reception area has many paintings by contemporary national artists.
Not only have Rodrigo and Horacio Fernandez brought a little colour to the world of panel making, but their enterprise and determination is creating a minor revolution at the heart of the South American wood panels sector.  n

Horacio and Rodrigo Fernandez