For most of the MDF World, 2006 was an unremarkable year, with just 1.56 million m3 added to world capacity, representing growth of 3.4% over 2005. Those readers whose memories stretch back to our 2006 MDF survey (of the 2005 situation) might recall the prediction that capacity would grow by 2.1 million m3,or 4.5%.

However, the changes by region, especially in China, reveal more dramatic events. The ‘rest of the world’ only contributed 44% of growth (697,000m3) when it had been expected to account for 80%. This loss of contribution came about through unusual events in China, compared with more normal and predicted developments in South East and North East Asia, South America and other parts of the world. It has been shown before that the ‘old world’, or North America and Europe, lost their predominant position a few years ago, being reduced to 43.7% in 2005. In 2006 this ‘old world’ improved its share to 44.1%. This year’s WBPI World MDF capacity survey shows that 2006, although exhibiting slower rates of growth than predicted, represents only a brief interval before renewed dynamism in new mill building. Indeed, some of the strong growth rates ahead look back to levels previously only achieved in the 1980s. The detailed results of the 2007 survey can be examined in the rest of the article, where the mill listings have undergone extensive changes based on the data received from the numerous companies which contribute information and commentaries on the surveys. The editor of WBPI and the author of this report both take this opportunity to extend their gratitude and appreciation to the many mill operators, equipment suppliers, association executives, engineers and other individuals for the support received every year. Please note that there are occasions when new information is provided after publication of the surveys and unfortunately no changes to the listings are feasible until the following year. China The mill listings for China are this year provided by group, or corporate, ownership in descending order of capacity for current and planned installations. The latter are marked in the list with an asterisk and their volume is not included in the country total. The China listing deals with multiple or large single line ownership first, whatever their location, and the balance of small lines are shown by province. The list as published shows few new installations for 2006 but the overall list, including those planned beyond 2006, can be seen to have grown considerably. It is as well to begin with China because of the comments made previously. There was a levelling-off in new orders for start-up in 2005 and 2006 but almost as important was the back-log in engineering and installation in new mills supplied by domestic or European equipment manufacturers. During the 2007 survey a number of lines previously included were identified as being postponed and perhaps cancelled. There are at least seven of these, amounting to over 550,000m3. Most were expected to be on-stream during 2005 but their aggregate total has been deducted from the 2005 figure reported last year, reducing it to 14.22 million m3 (as against 14.75 million m3). This has an obvious knock-on effect for the end-December 2006 total. Additionally, there were some modifications to reported capacities and slippage in the installation of new plants. It is not certain quite how many new lines came on-stream during 2006 – probably less than the nine predicted last year. The net effect was to reduce the 2006 aggregate Chinese capacity to 14.375 million m3 instead of the 15.52 million m3 shown in last year’s survey and representing only a nominal increase over 2005. This, in itself, suggests an increasing anomaly with some other quasi-official data of Chinese MDF capacity and production. These data tend to be higher than shown here. The author believes some of these other sources incorporate all fibreboard – wet or dry process, low or high density. The author will also admit that it is possible the listings omit some mills. However, the larger mills with European equipment are well documented in published reference lists. Many more mills are installed by Chinese equipment suppliers whose information is constant year-on-year (thus the aggregate capacity might be lower than reality but changes over time ought to be more reliable). Nevertheless, the Chinese industry remains very regional and local, with small average mill sizes. The many new mills forecast for 2007/2008 average a capacity of only around 50,000m3 per annum. There are 352 lines built or under construction, of which 189 are in multiple ownership or are large scale (over 100,000m3 per annum). This is only a small increase over the 184 reported last year and suggests many of the new lines under construction are actually for new owners. The listing continues to show fragmented corporate ownership, although with new lines announced there have been changes in the league table. Weihua Manufacturing, originally based in Guangdong, will become China’s first group to exceed one million m3 of MDF capacity, with several new large lines built in other provinces. Suichang Wood Industry will have the most lines (12) by 2008 and rises behind Dare Group. The latter company has ordered a fourth large-scale line for Guangdong. Dongdun is another climber, aided by its new line in Anhui of some 250,000m3 per annum. For 2006, however, the market was adjusting to the nearly two million m3 expansion between 2004 and 2005. There is little doubt that the equipment suppliers are struggling to complete installations and the slippage in commissioning times, coupled with new orders, will see another surge in capacity coming on stream in 2007 and 2008. As other producers around the Asia/Pacific region (and wider afield) are well aware, the effect on Chinese © p25 ß (p17) export volumes is significant. In 2006, exports reached 1.5 million m3 and the first four months of 2007 show a 188% increase over the same period in 2006. Imports, on the other hand, have declined each year since 2003 (1.25 million m3). In 2004 they were 812,000m3, 676,000m3 in 2005 and 566,000m3 in 2006. January to April 2007 shows a 17% decline on the same period in 2006. If these patterns continue for the whole of 2007, then the MDF trade balance will have swung by between 2.5 million and three million m3 since 2003 – a convenient explanation of how the capacity growth has been absorbed. At the time of writing, a rather disturbing conclusion begins to form which is that Chinese domestic MDF consumption (in products for either internal or export markets), has not increased as rapidly as previously forecast. Several of the new large mills report that 60-80% of their production is exported as raw board. The concern therefore should be how will the new capacity which is predicted for 2007/2008 be utilised, particularly in the light of new mill building in other regions? Developments in other regions The 2006 survey (of 2005) commented on the amount of acquisitions and mergers taking place in the industry. These have continued, with notable activity by Dongwha acquiring the Guthrie mill at Kulim, and the Merbok lines at Sungai, both in Malaysia. Together with its activities in Korea and New Zealand, Dongwha has become the first of several new companies outside North America and Europe to operate more than one million m3 of MDF capacity. Uniquely, they are the only company to achieve this by acquisition. Evergreen also made acquisitions during the year, adding the Takeuchi lines in Johore Baru and PT Hutrindo in Palembang to its stable (the Indonesian mill was removed from the listings in 2004 but will be resurrected with a new line in 2007). It is noted that PTP China, sold to CHH in 2004, has been sold again to private equity investor CVC Capital. Elsewhere in South East Asia no new lines came on stream in 2006 but Vanachai and Siam Fibreboard report their mills coming to full capacity and adding 153,000m3 to the total for Thailand. Indonesia and Malaysia reported only small adjustments to existing capacities. There is no sign of the several new mills announced for Vietnam a few years ago and contacts suggest that availability of funds is the main issue. South America was relatively quiet during 2006 but Fibraplac reported the completion of its Glorinha mill with an additional 240,000m3. There will be much more about South America in the section on Future Trends. North East Asia was also quiet during this time in terms of little change to aggregate capacity. However, individual mill capacities have been modified with the closure of Taesung in Korea. The Australian/New Zealand industries have had an eventful year. Apart from the aforementioned acquisitions and sales, CHH closed its Tasmanian plant and the Taupo plant of Laminex was shut by fire at the end of the year. That plant will not be re-opened. Both mills are shown in the 2006 listing but their combined 365,000m3 per year capacity is removed from the 2007 aggregate. There are some small downward adjustments to other mills and the net effect on regional capacity would be part of the fall-out from the expansion in China and South East Asia. In the ‘rest of the world’ countries, the new mill in Iran is noted, as is the start of the expansion at Al Noor Sugar Mills in Pakistan. The Merbok mill in Sri Lanka is unaffected by the other Merbok sales (except the improving golf-handicap of the previous senior executives/owners, by their own admission!). Future Trends The ‘Summary of new capacity’ table (p16) shows the changes to the listings expected by country and mill at the time of writing. The survey confirms a considerable revival in new mill building for the 2007-2009 period which will represent the greatest surge in activity for decades and possibly for the history of the industry. At least 83 new mills worldwide are on order or under construction, accounting for around 13 million m3 of new capacity. Four million m3 of this, as shown in the table, will be found in Europe and North America and nine million m3 in the ‘rest of the world’. China will account for 3.7 million m3 with 42 new lines in 2007 and a further 11 lines in 2008. About two million m3 of this capacity will be found in nine large-scale lines (shown individually in the table). South East Asia will see the new lines of Vanachai, Advance Fibreboard and Siam Fibreboard coming on stream in 2007, together with the re-opening of the renovated Evergreen mill in Palembang. Australasia will suffer a decline (consolidation?) once the full effect of the two mill closures is felt. They will be the only region to exhibit a capacity reduction during the period. Interestingly, 668,000m3 (44%) is owned by Japanese or Korean companies and the North East Asia region is one where capacity is virtually static. South America affords most surprises, with capacity nearly doubling from 2006 to 2009. However, 2007 begins quietly with the completion of the Arauco expansions and the commissioning of Masisa’s Cabrero plant in Chile. Then 2008 will see Berneck and Satipel add 620,000m3 to Brazil’s total and two new mills will start up. In Chile, Group Polincay is building 150,000m3 and Uruguay will be welcomed to the list of MDF producing countries with the ex-Taesung mill rebuilt. South America also has the longest-term potential start-ups – out to 2009 with possibly six new lines. Three of these will be built by Shanghai Wood Based Panel Machinery Company (SWPM), which is also building a mill in Mexico, two in India, with a third starting up this year, and one in Pakistan. This brings their global order book to around 43 lines and there is sure to be a few more in the pipeline. Another surprise is the 680,000m3 per annum mill for Duratex. This will be the largest single line for MDF production in the world, with a 2009 start-up date. In the rest of the world, five mills are expected in Iran during 2007 and Shirdi Industries (SWPM) will begin in India. During 2008, two new mills are expected in India (Bajaj Eco-Tec Products) and two more in Pakistan – Crystal Board Mills and Peshawar Particleboard Industries. Another mill is expected in Iran (Neka Choub). There is also a new mill rumoured for Nigeria, but perhaps not before 2009. The impact of these new mills will be to see world capacity growth of 12.3% in 2007 and 7.8% in 2008. Preliminary information from Europe and South America alone suggests further growth of 3.8% in 2009. The growth rates for just the rest of the world are 14.1%, 8.6% and 4.8%. Aggregate capacity in these regions will pass 30 million m3 during 2007. By end-2009, global capacity could be 60 million m3. A feature of interest to industry watchers is that apart from Dongwha, several other ‘rest of the world’ countries will join the ‘millionaire’s row’ of capacity. Masisa achieves 1.19 million m3 per annum with the opening of its Cabrero line and Paneles Arauco will hit 1.15 million m3, both in 2007. Also in 2007, Evergreen will join the ‘million club’. In China, Weihua will achieve 1.275 million m3 by end-2008, with Dare not far behind with 960,000m3. The third South American company, Duratex, will pass the threshold in 2009. As a counterpoint to this optimism, most mills returning the enquiry forms expected costs to rise sharply during 2007-8, ranging from 5 to 15%. Most expected price increases but few saw them covering cost increases. Two events in June illustrated another threat to the panel industry. Both are concerned with emissions; both from the US. The California Air Resources Board (CARB) introduced maximum levels of formaldehyde emissions from composite panels which are more stringent than anywhere else in the world. The law affects any boards manufactured or traded within California and eventually the products containing wood based panels. Industry can meet the requirements but only at extra cost. The second event was the appeal court ruling in the US (see p5) against the industry regarding Maximum Achievable Control Technology (MACT) rules. The range of emissions is wider than just formaldehyde and the US industry has to comply by October 2007. The implication of the ruling is ‘comply or close’. While the industry can comply, technically, in most instances, it is unlikely that compliance can be achieved before October. Both events represent a generic cost rise for MDF and particleboard on top of increasing costs of wood and resins. The threat is that wood based panels become less attractive than other materials on both cost and risk grounds in the eyes of specifiers and buyers. Legislation such as this could further impact the relative feasibility of future mill locations. 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 26 years. He can be contacted by phone (44) 1376 501565; fax (44) 1376 501557; e-mail: