Last year this report began with an introduction explaining that capacity surveys do not reflect the short- and medium-term market conditions. Potentially, 2009 could be the worst trading year that MDF – and most other wood products – will ever experience.

Yet European capacity will grow by around 9% and even North America could see around 4% growth over the previous year. In Europe, 2008 saw an expansion in MDF capacity of 7.5%. Therefore, in the two worst possible years, European MDF capacity will grow by around three million m3.

It is as well to remind readers that the mill listings deal with physical standing capacity which in most instances is still operating, albeit at much-reduced levels. Mills temporarily closed are also
included. The reports do not cover changing production, trade and consumption – these topics are for another time and place.

As such it is inevitable that capacity changes are rather smoother than those for consumption. Right now there is possibly as much as 50% more standing capacity in Europe and North America than the market warrants.

For those readers who are sailors, the analogy of the tides is rather apt: on the surface the outgoing tide of consumption is clearly visible, yet below it there is the incoming tide of new capacity.

In 2008, aggregate capacity for Europe and North America reached 23,699,000m3 or an increase of 2.6% over end-2007. This is a definite slowdown but it still represents growth and not very much different from our forecast made last year. There were six new lines in 2008 in both regions, matching the 2007 achievement. On the other hand, three closures are recorded.

The 2009 survey provides capacity listings at end-2008 and provides information about new projects and closures likely in 2009 or 2010. The survey is published in two reports: This first survey covers Europe and North America; the second reviews the ‘Rest of the World’ and will be published in the August/September issue.

The author and editor continue to be grateful to all those organisations and individuals that provide information for the survey. The sources used include trade associations, panel equipment suppliers, trade journals and panel manufacturers. These contributions are crucial and for anyone wishing to contribute to either the MDF or particleboard surveys, online enquiry forms are available for completion at We are pleased to receive information at any time of the year convenient to you.

Please also note that capacity data is attributed to individual mills but non-standard production and business barometer information is aggregated to represent overall industry trends.

European Capacity

Total European capacity at the end of 2008 stood at 18,361,000m3, a growth of 1,287,000m3, or 7.5%. Very few adjustments to existing capacities listed previously have been made, so this represents a real change.

All the new lines were installed outside western Europe (the original EU15). Those that are shown as changes represent the completion of previously installed lines at FBB Classen (+160,000m3) and Pfleiderer, Nidda (+50,000m3). Three lines, representing 660,000m3 of new capacity, were started up in Turkey; the first Starwood and Turanlar lines and the extension at Kastamonu’s Gebze site.

Homanit commissioned its new mill at Karlino, Poland and it is believed Abinsk, Russia has opened. Rimbunan in Siberia is postponed until some time in 2009. Hardly surprisingly, no capacity increase of note was reported although it might be expected soon as mills fight desperately to contain costs. In the latter part of 2008 the strong dollar hit European producers by way of increasing fuel and resin costs.

MDF producers have seen a general slide in prices and there is widespread comment that many sales are being made at or below cost.

This is not the first time these surveys have described the ‘nut cracker’ effect of falling demand and prices just at the time cost pressures increase. For 2008 no mill closures – despite much press comment – have been reported in the survey. Mills have responded to the conditions by what may be considered as a temporary approach to curtailing capacity. This has taken several forms, including shift reductions or regular shutdowns such as one week per month. Some mills have opted for longer closures than normal, such as going from one week to two weeks or two weeks to a month.

The impact has to be a capacity reduction in Q4 2008/Q1 2009 of 7.5 to 20% annualised. The short-time working has been ameliorated by new mill openings and additional trade. Established mills tend to suffer the most in these conditions. There is not a mill in any European country that has not been affected. The new mill openings are not expected to do well initially.
The first part of 2009 has piled on what might be described as agony for existing mills yet despite closures, new capacity will increase by 9% or 1,660,000m3, none of which will be in western Europe.

The closures which will take effect in 2009 include the Sonae Group’s Isoroy mill at St Dizier, France; Homanit at Herzberg, Germany; and another Sonae Group line at Meppen, which will be the older and smaller of the two lines operating. The previously mentioned expansion at Meppen was clearly an exaggeration! Closures will amount to 415,000m3 in a full year.

The new mills will be built in Turkey and Russia, plus Kronospan in Poland which was delayed from last year. Turkey will see two new lines, Yildiz Entegre and Starwood. Four new projects should start up in Russia. The most certain is Pfleiderer at Novgorod, but it is feasible all may slip to the year-end or even into 2010.

Thus European capacity will pass 20 million m3 during 2009 – assuming most of the Russian mills can be considered technically to be in Europe. (At least two projects are in Siberia). This is within 2% of the forecast made last year.

For 2010, just two mills are believed likely; in the Ukraine a Kronospan mill; and in Russia, the Partner Tomsk mill. Capacity will grow to 20,461,000m3 – a further 2.2% on the 2009 total. The Partner Tomsk line has slipped from 2008 and Kastamonu has announced its Russian venture is postponed to 2011. No other information was forthcoming about other postponements or, for that matter, cancellations. The contrast between western Europe and the remainder of Europe regarding capacity development has never been more marked, as is seen in Table 2.

In just two years, a physical reduction in EU15 capacity leads to a fall in share from 62.5% to 54.1% of the European total. The rest of the EU fares a little better, principally because of Poland, but its share falls slightly. Russian capacity more than doubles, as does its share. Turkey attains over 20% of European capacity and the new mill in the Ukraine causes the ‘other’ region to improve share as well.

North American Capacity

Conditions in North America have been just as brutal as in Europe. Demand is still falling year-on-year, with Q4 2008 down 12% and recent figures showing January 2009 15% lower than the same month in 2008.

Operating rates are as low as 70% on average and some mills report just 50% (not confirmed over a full year). It is not surprising that three mill closures took place during 2008, of which two were predicted in last year’s report. These were Uniboard La Baie and Great Lakes MDF (which will not officially close until mid-2009). The third closure is one of the historic names in the American MDF industry, Holly Hill. Originally an independent, then acquired and operated by Georgia-Pacific until being sold to Roseburg Lumber, the mill closed in 2008.

With no new mills or significant mill improvements reported, North American capacity in 2008 fell to 5,338,000m3 – a drop of 11.4% over 2007.

The industry has responded to market conditions with short time working, in addition to temporary closures. Quite a lot of these steps are being taken by the owners of many of the original MDF mills from the 1970s. Apart from Holly Hill, these include Medford Rocklin, Plum Creek and Ranger. In some ways the North American industry is responding rather more quickly to the conditions than the Europeans but European laws regarding lay-offs and redundancies are less flexible than those in the US particularly.

Future Changes in North America

2009 will see a further casualty of the recession with Great Lakes, Lackawana closing. The delayed Kronotex mill in South Carolina is due on stream during the year. The second MDF mill in Mexico is also due, although it is a small line supplied by Shanghai Wood Based Panel Machinery (SWPM).

The net effect will be an increase in capacity of 4%, to 5,554,000m3. By no means certain, Uniboard is proposing to transfer the line closed in La Baie to the ex ATC site in Moncure. Uniboard acquired the particleboard site from ATC, meaning that ATC’s own MDF installation will not take place. If this occurs in 2010 then total North American capacity will reach 5,824,000m3, or 200,000m3 less than at end-2007.

No one wants to predict a return to recovery in the housing sector and 2009 will see an especially low level of activity; it would be optimistic to suggest anything earlier than 2010.

Flooring, furniture and cabinetry markets will be lagging sometime thereafter, leading to the back-end of 2010. How much of the industry can, or is willing to, hold on for this period is debatable. Given the corporate dynamism in North America, expect acquisitions on a significant scale.

Non Standard Production

What is clear from the survey is that there is a vigorous intention by North American and European mills to consider added-value products.

Previously, the trend has indeed been to increase the proportion of non-standard boards but it is evident that in the current climate, operators are trying to accelerate the process. North America, starting from a lower base, is moving faster than Europe. North America seems to lean towards lightweight and ‘zero’ formaldehyde boards.

In Europe, where the tradition of non-standard boards is longer, the share is expected to grow. Of interest is the response from the new mills in Russia and Turkey where the share in production will rise rapidly from 0-5% up to 15 and 20%. Some trade watchers have reported, however, that the prices of varying grades of MDF are moving downward together and the differential between them and standard boards is narrowing – except for one or two very special grades.

Business Barometer

It would seem that the industries in both North America and Europe are more bullish than actual conditions suggest.

The consensus in North America about production is that after a poor 2008 and 2009, conditions will rebound in 2010 to above previous levels. However, about half the mills expect 2010 production levels to be lower than 2008. The actual indices provided in 2007 are shown in parenthesis against the base level point. Therefore, 2008 was already below previous levels and 2009 will fall further. As already explained, these falls are greater on average than the minus 6.7% shown here. As for prices, they too will fall sharply in 2009 but the rebound in 2010 should be treated with caution. Costs are expected to rise in 2009 and maintain that level into 2010.

As for Europe, the 2009 production volume expectation is very much worse from mills in western Europe than elsewhere. Where Europe is especially downcast is over the matter of prices. Mills offer some severe predictions for 2009 and 2010, even though prices have fallen already in 2008. The Europeans agree with the North Americans that costs will rise. A 4% increase over base levels appears very modest. Given the falls in operating rates, costs/m3 can only rise.

One fear expressed by the established western European mills is that some of the production from the new plants in the emerging regions will find its way into their markets.

By the time Part II of this survey is published and the particleboard survey is in preparation, there may be some indicators as to whether the markets might begin to stage a recovery. Wood markets are always especially vulnerable but the construction sector is one of the principal focal points for action by governments on both sides of the Atlantic.