The outlook for U.S. particleboard and MDF.
Demand for PB/MDF never higher
Nearly all industrial market sectors for panel products are healthy and growing along with the overall U.S. economy. Cabinets and furniture, the two largest customer groups, have been strong the last two years and market prognosticators believe they will remain strong for another one to two years. In October, the cabinet industry realized its 35th straight month of incremental growth and is headed for an approximately 14 percent increase in sales in 1994. The American Furniture Manufacturers Assn. estimates that the dollar value of all furniture sold will increase by 10.5 percent in 1994 and 4.8 percent in 1995. The ready-to-assemble (RTA) furniture industry, probably the fastest growing segment of the furniture industry, has had consistently strong sales an is cruising towards a 10-15 percent annual market growth this year.
Resource Information Systems Inc. (RISI), a Massachusetts-based forest industry market consulting firm, estimates that U.S. consumption of PB/MDF, defined as total U.S. production, plus imports, minus exports, is slated to grow 6 percent in 1995 and 1996 and MDF consumption will increase by 9-14 percent during the same period. Figures 1 and 2 show historic consumption and RISI's predictions through 1999.
Particleboard markets expand in traditional areas
Demand for industrial grade PB has grown by almost 12 percent through October of 1994 over the same period in 1993, and over 22 percent for the first 10 months in 1991. Total U.S. shipments of PB in 1993 were 4,241 MMSF (million square feet, 3/4 inch thick). Most of this product is going into traditional applications such as office, electronic, RTA and wood household furniture and cabinets. As manufacturers continue to improve properties such as surface smoothness and thickness tolerances, PB has also made in-roads into traditional MDF markets where thin laminate and coating applications are more demanding.
Even PB manufactured home decking, after losing market share to plywood and oriented strand board, and after a slower manufactured home market since its high in the early 1970s, has regained market strength. Decking shipments have increased by 40 MMSF in three years - the equivalent of a small PB plant - or by nearly 58 percent.
MDF markets are growing and finding new applications
With the increasing scarcity of high-quality millwork lumber, MDF has found new converts. Routed, then painted or vinyl/paper wrapped, MDF has found a home in moulding markets. Only its limited availability appears to slow MDF expansion into this new use. New production technology has pushed the envelope of product quality. New refining techniques have made MDF surfaces even smoother, and new pressing methods have allowed producers to lower the weight of some MDF products without sacrificing physical properties.
Total U.S. shipments of MDF in 1993 were 1.161 MMSF, an all-time high. October year-to-date shipments increased 6 percent in 1994 over the same period in 1993, and by 26 percent over the same period in 1991.
New panel sources
RISI predicts that domestic consumption of PB and MDF will grow by 6-14 percent per year for the next two years. A principal constraint on the growth of these markets is the panel manufacturing base. How will this demand for PB and MDF be met when current production capacity is operating near its practical limits? There are several answers:
* Existing production facilities are fine-tuning and "de-bottlenecking" their processes, adding new equipment, and enhancing their output potential;
* New greenfield facilities are being built, adding entire new plants to the production base; and Canadian and off-shore panel producers are supplying an increasing share of the U.S. market's demands.
There has been little change in production capacity over the last five years. Table 1 shows the net increase in plants after factoring mill closures. Why hasn't there been more growth in the industry before now? Figures 3 and 4 show one reason. After factoring inflation, mill prices of PB and MDF haven't changed significantly since the mid 1970's. Not until recently has the mill price of these panels increased enough to tempt the commitment of the significant capital required to build new plants.
Manufacturers are fine-tuning existing facilities
Many U.S. panel producers are in the process of increasing their production capacity through improvements to existing facilities or by adding new equipment. Several manufacturers have ordered new refiners or new press platens. These and other incremental improvements should make a measurable difference in the industry's capacity base. While estimating industry-wide impact of "de-bottlenecking" is almost impossible, an incremental increase of 2 percent in the capacity base of 6,000 MMSF - a very conservative estimate - would be 120 MMSF, the equivalent of one medium size plant.
New facilities are being built
New production lines will also be a substantial new source of PB/MDF. Table 1 shows the known and or announced new facilities, with start-up operating dates before the end of 1995.
In addition to these facilities, Willamette Industries is converting its 80 MMSF PB line in Eugene, Ore., to MDF. These new or converted facilities will add about 4 percent to the U.S./Canadian PB base and nearly 23 percent to the MDF base before the end of 1995. Several other MDF plants are on the drawing board for completion in 1996 and beyond. While these facilities will certainly bear on long-term supply, it is unlikely they will have a significant impact on short-term supply and demand.
Table 1 shows a few of the PB and MDF plants that have been announced for construction in North America. It is estimated that none of these facilities will be producing board before 1996.
Imports are increasing
Canada is the fastest growing source of PB and MDF for U.S. markets. Statistics Canada figures show that 476 MMSF of PB was imported to the U.S. from Canada in 1993. This represents only 10 percent of the domestic consumption for 1993 and over 90 percent of all U.S. PB imports.
Historically, much of the off-short PB and MDF has not been cost-competitive in the U.S. because American producers were among the lowest priced producers in the world. However, as wood and resin costs have risen along with panel demand, the market price of U.S. products has made some imports more competitive. Europe has a well-developed PB and MDF industry which has recently been more cost-competitive in U.S. spot markets. As long as the European economic recovery lags behind that of the U.S., our market will be viewed as an opportunity for European producers to incrementally expand their market to fill out production schedules.
PRICES REMAIN STATIC SINCE '70S
U.S. PARTICLEBOARD AVG. MILL PRICE
CURRENT $ 1992 $(*)
1976 115 230 1977 136 257 1978 220 440 1979 170 262 1980 180 240 1981 187 225 1982 196 231 1983 202 235 1984 218 248 1985 203 228 1986 213 251 1987 225 256 1988 224 246 1989 229 239 1990 216 218 1991 213 213 1992 228 228 1993 262 257
* Adjusted for inflation FIGURE 4
U.S. MDF AVG. MILL PRICE
CURRENT $ 1992 $
1976 195 390 1977 205 387 1978 226 452 1979 270 415 1980 294 390 1981 340 410 1982 324 381 1983 328 381 1984 341 388 1985 354 398 1986 342 402 1987 337 383 1988 321 353 1989 324 338 1990 327 330 1991 328 328 1992 337 337 1993 356 349
Source: National Particleboard Assn.
As the European economy continues to improve though, it is probable that European manufacturers will be obliged to pull back from the U.S. market to meet European consumption needs. South American producers may be more competitive in the U.S. in the longterm. A relatively large fiber base, augmented by well-established radiata pine plantations, puts developing wood panel industries in Argentina, Brazil and Chile in a good position to expand in the U.S., and each of them are already test marketing PB and MDF panels in the U.S.
Rise in chemical cost, forces prices for PB and MDF up
No discussion of PB and MDF today is complete without addressing the issue of increased chemical costs. Nearly all adhesives used in the manufacture of wood panel products use methanol as a basic feed stock. Methanol is manufactured from natural gas and in turn is a primary feed stock for the manufacture of formaldehyde. Formaldehyde is then used to produce urea-formaldehyde, phenol-formaldehyde, and isocyanate adhesives.
While wood industry adhesives account for only a small fraction of methanol use, high demand for methanol as a gasoline oxygenating additive, small increases in the methanol production base, and a tightly controlled methanol global distribution systems have driven up the cost of wood adhesives dramatically. Some panel manufactures report their resin costs have nearly doubled in the last two years, with most of these increases coming recently. Resin costs are expected to continue their rise in the near term, but methanol prices will likely come back down to earth within the next 18-24 months, returning stability to the resin industry.
All in all, the long-term outlook for panel users is excellent. Increased availability of panel products over the next 12-18 months will ease the pressure on panel markets. While PB and MDF prices have increased over the last year, the main reasons for these increases will largely be addressed within the next two years in a way that helps panel users. We're convinced that PB and MDF will remain a bargain for the user, considering their quality, performance, versatility and overall usefulness when compared with alternate materials.
[TABULAR DATA OMITTED]
Richard Margosian is executive vice president of the National Particleboard Assn., Gaithersburg, Md.
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|Title Annotation:||medium density fiberboard|
|Publication:||Wood & Wood Products|
|Date:||Jan 1, 1995|
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