Although China represents the majority of this shift, as will be shown, the other regions each made a contribution in 2005 and in some cases will make greater contributions in one or two subsequent years. The detailed results of the 2006 survey are published in the following pages and the mill listings have been further refined utilising the information received from our many cooperating companies. The author and editor once again express their appreciation of the support received from operating companies, equipment suppliers and other individuals. We both believe this level of support stems from your interest in the topic. The mill listings for China continue to be shown by corporate ownership which summarises the number of lines and aggregate capacity for existing and planned lines. The planned lines are asterisked (*) but the total capacity figure shown in the listings only includes lines operating at the end of 2005.
It would seem that the listing highlights the levelling-off in new mill orders in that the Gaochao Group, for example, was shown with one line in production and 10 lines under construction. This year it has put two of these lines into production, but seven lines may well have been cancelled.
China
China added just over two million m3 of new capacity in 2005 compared with the 2.3 million m3 predicted in last year’s survey. Although a remarkable performance in itself, it is symptomatic of the declining new order levels, and slippage in installation schedules, discussed in the 2004 survey. Not only are new orders at very low levels but some companies have postponed or perhaps cancelled orders which were shown in last year’s survey. Even so, China overtook the whole of western and eastern Europe, Russia and Turkey as the leading region for MDF capacity in the World during 2005 and will retain that position in 2006 – and for some of 2007.
As far as can be determined, about 25 new lines came on stream in 2005, compared with the 32 predicted a year earlier. At that time at least 14 lines were thought to be scheduled for 2006 but today only nine can be identified. Needless to say, the actual capacity volume increases forecast for 2005 and 2006 have not been achieved.
The Chinese MDF industry is very regional and local, with a preponderance of small mills. There are obvious concentrations of production in the south and east of the country where furniture production is centred, however most provinces possess some MDF capacity. The listings show around 184 lines are owned in multiples of two and more but there are 124 single line operators. Consequently, no company can claim more than 5% of industry capacity. Six million m3 of capacity is held by 18 groups for just 41%.
To an extent this explains the rapid development of the industry since 2000. Although ‘over-capacity’ is not a term to be welcomed, the rapid increase in new mills has created production surpluses despite rapid growth in the end-using industries. The laminate flooring industry can only use the production from the new continuous presses established in recent times, leaving the vast majority of mills with multi-daylight presses unable to participate. Not surprisingly, many companies have turned to exporting.
Chinese MDF exports in 2003 were a modest 50-60,000m3. They rose to 400-450,000m3 in 2004 and more than doubled again in 2005 to between 1.2-1.3 million m3. 2006 exports have posted a 35% gain already. Conversely, Chinese imports of MDF peaked in 2003 at about 1.25 million m3. By 2005 they were about 865,000m3 and are likely to drop a further 10% in 2006. These net trade gains absorbed over 10% of Chinese capacity in 2005.
The impact on MDF producers outside China is not to be ignored. During 2006 there is likely to be a swing against these producers of around 1.7 million m3. Surprisingly, most non-Chinese producers will not feel the impact in their domestic markets for the time being. Chinese exports are concentrated into the Middle East (circa 44% of 2005 exports) and Canada/US (circa 25% of 2005 exports).
Chinese exports to the Middle East grew from hardly anything to 500,000m3 in two years. This has affected producers in Malaysia, Thailand and Indonesia as well as Australia and New Zealand. From our survey of likely production changes, companies in these countries reported an average of just 1-2% increase in 2006 and 2007, which is probably in response to the Chinese export position.
Developments Elsewhere
The significant developments in 2005 did not really occur when compared with this same report last year. Our principal deficiencies in the 2005 survey were to attribute a new mill to Evergreen in Malaysia and to bring forward two of the Thai mills which are not due to be commissioned until 2007. This affects the 2005 capacity level for South East Asia but these mills will be built and capacity will catch up (and exceed) the forecasts by the end of next year.
Indonesian capacity for 2005 shows an increase but this is the result of receiving new information from Sumatera Prima.
In North East Asia, very few changes occurred to affect 2005 capacity. There was, however, an announcement that Taesung in Korea will close but this will not be effective until 2006.
The slight growth in Australia/New Zealand capacity derives from a few small modifications reported to us by the mills concerned.
The apparent increase of 100,000m3 in South America compared with 2004 is the result of adjusting upwards the capacity of the Placas do Paraná mill in JaguarÃaiva, Brazil. (It has been reported elsewhere that actual production is currently at a lower level). The South America market has strengthened compared with three or four years ago and although there is little change for 2005, new developments are in the pipeline.
Elsewhere, there are few changes which were apparent for 2005. This does not mean the MDF industry was dormant. In the absence of significant new mill building outside China in 2005, there has been much corporate activity by way of mergers and acquisitions. Starting in mid-2006 and looking back a couple of years, the level of company purchases has been quite surprising.
The table on page 12 includes North America and Europe and summarises quite a number of changes, by region. Over seven million m3 of existing MDF capacity has changed ownership, which is about 15% of world capacity at the end of 2006. Included in these deals was a significant volume of particleboard capacity as well.
The motivations behind these acquisitions are varied but might include:
* a desire by some purchasers to increase their market share; * a need by some companies to expand outside their home countries because of lack of domestic raw material; * the belief that acquisition of existing mills is ‘cheaper’ than ordering a greenfield mill; * the fact that MDF mills were acquired as part of another deal, for example Mohawk bought Unilin in France as part of an expansion in laminate flooring while Rank Holdings bought CHH for their other activities rather than the MDF mills.
Future Trends
The survey revealed quite a lot of new activity in the Rest of the World and this is summarised in the table above:-
The slowdown in China is readily apparent, with just 770,000m3 of new capacity in 2006, 215,000m3 in 2007 and nothing, at the time of writing, reported beyond 2007. The Fibraplac mill is due in 2006 in Brazil and Masisa’s Cabrero plant in Chile will add a further 350,000m3 during 2007. Berneck has announced a new 250,000m3 line to become operational in 2008.
India and Pakistan will add two small lines in 2006 and 2007 while the Sugar Cane By Product line in Iran signals the beginning of a series of new mills in that country. Five lines are expected in 2007 and a further line in 2008.
In 2007 three new lines in Thailand will add 748,000m3 of new capacity and it will be interesting to see where their new output might be sold.
The above table of Aggregate World Capacity shows that:
World capacity will expand by over 2.1 million m3 in 2006 and a further 3.8 million m3 in 2007, or 7.9%. Even though new developments in Turkey and Russia will help boost European capacity, the shift to new centres of production is confirmed – which is best illustrated by the expansions in South East Asia, Iran and South America.
A couple of interesting findings from the survey might illustrate how existing producers view the impact of some of these changes: Only 14% of mills report cost reductions for 2006/7 and 86% expect to see costs increase (in the range of 2-3%, but averaging around 5%). Optimistically, these same mills report hoped-for price increases.
However, a hardcore of Malaysian/Thai mills report price increases only equal to, or less than, their cost increases. This leads to a pessimistic outlook for mill profitability over the period.
It is the Australia/New Zealand mills which are most optimistic about improved profitability and they have been the subject of a high proportion of acquisition activity.
The new capacity in Asia and South America, coupled with the Chinese net trade effect, will have considerable impact on the industry’s ability to maintain utilisation levels. It may be time for many existing mills – both outside and inside China – to return to the generic promotion of the fundamental benefits of MDF among potential end-use markets. It does appear to be important to the future well-being of the MDF industry in most regions to act in concert to raise per capita consumption.
John Wadsworth is the managing director of Intermark. He has been researching and consulting in panel products globally for over 25 years. Phone (+44) 1376 501565; fax (+44) 1376 501557; e-mail: inter.mark@virgin.net
