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North American Lumber Market

01-15th September 2007


        

North American MDF capacity to grow marginally
The capacity of Medium Density Fibreboard (MDF) in North America grew at a very slow pace last year from 5.6 million m3 to 5.7 million m3. This is a mere 1.6% and amounts to less than 100,000 m3. As no new mills came on stream, virtually all of this increase came in the form of a few mill renovations.

In spite of the stagnant capacity situation, the industry is not standing still. Several noteworthy ownership changes took place recently or are in the negotiating stage.Flakeboard America has acquired three Weyerhaeuser mills, providing the company with over 1.2 million m3 of capacity, or 21% of the North American total. At the end of 2006, Roseburg Forest Products, the largest overall composite panel producer in North America, purchased Georgia Pacificí»s Holly Hill mill. The origin of the Holly Hill mill goes back to the mid-1970s. As such, it is one of the oldest MDF mills in North America but it has since been upgraded. Georgia Pacific still retains its thin MDF operation in Monticello.

The capacity growth in the North American MDF industry was only marginally higher this year but it will likely accelerate a bit next year. In 2007, new installations added about 8.2% to capacity to reach approximately 6.2 million m3 up from 5.7 million m3 the year before. Next year, capacity is predicted to advance by about 9.3% or slightly in excess of one-half million m3 to a total of approximately 6.8 million m3.

Overall, the past and anticipated future volume growth between 2005 and 2008 is fairly modest at just slightly above one million m3. Nevertheless, the prolonged and uninterrupted positive growth rate is a rare occurrence in the North American MDF industry.

A few noteworthy companies undertook new capital investments last year or are planning to do so in the near future. Kronotex in Barnwell, SC recently added about 8% or 440,000 m3 to its MDF capacity raising it slightly above 6.2 million m3. In 2008, the Kronospan plant in Eastaboga, AL will produce commercial board and add a further 300,000 m3 to capacity. The press is configured for lengthening at a later date, with the possibility of a further 120,000 m3. 

The installation of a line at ATC Moncure is also due to start up soon with a capacity increase in excess of 200,000 m3. Industrias Emman de Ocotlan will also open a new mill in Mexico next year. The company already operates a small particleboard facility and has bought a 45,000 m3/year line from Shanghai Wood Based Panel Machinery Co. Ltd.

The North American MDF industry is also progressing by way of shifting its production towards higher value-added products. Almost all of North American MDF mills intend to increase their volumes of non-standard or added-value grades. The growth of such products amounted to an estimated 24% in 2007, which may result in an even higher growth rate in the 27% range. Currently, nonstandard output represents about 14% and may rise to as high as 20% in 2008.

Laminate flooring is undoubtedly the brightest prospect for the North American MDF industry. This applies in particular to ATC (Shippenville and Moncure),Flakeboard, Unilin (Mt. Gilead), and SierraPine (Medford).

It is interesting to note that North American mills which are not engaged already, or only to a limited extent, in flooring substrate production do not plan to increase theirinvolvement in the near future. The companies do not possess appropriate presses or doní»t have spare capacity and seem to be afraid to compete against newer specialized flooring facilities that have recently been installed.

Other forms of new non-standard MDF being developed and coming on the market include lightweight panels, building boards, overlaid boards, and higher performance boards (using low formaldehyde resins). In response to new environmental requirements SierraPine has developed
í«Sustainable Design Fibreboardí» (SDF), which is an innovative new grade of environmentally friendly fibreboard.

Apart from laminate flooring, the future of the MDF industry in North America is full of challenges, largely as a result of the weak housing market. Residential construction is 20% below 2006 levels and it is not likely that an improvement will happen before mid-2008.

Rising imports of secondary wood products from China and other low costs countries also have a detrimental impact on the North American production of furniture,  mouldings, and other secondary wood products. The low value of the US-dollar is mitigating the problem only to a minor extent. In an environment of fierce international competition, Canadian and other foreign mills exporting to the USA are usually absorbing the exchange losses themselves, rather than losing the sale to a competitor. Last but not least, the MDF industry has to grapple with expensive and ever stiffer environmental regulations (MACT and CARB) ĘC above all in California.

The North American demand for í░commodity-likeí▒ MDF is likely to grow only by about 2% this year and only marginally faster in 2008. This is slower than the new capacity growth and responsible for the oversupply of MDF. In view of this situation, MDF prices may remain soft. To make matters worse, the MDF industry is suffering rising input costs. Experts are hopeful that market conditions will improve next year allowing prices to rebound a bit in the second half of 2008. As mentioned above, companies specializing in higher-value-added products are doing better.

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Abbreviations

LM        Loyale Merchant, a grade of log parcel  Cu.m         Cubic Metre
QS         Qualite Superieure    Koku         0.278 Cu.m or 120BF
CI          Choix Industriel                                                       FFR            French Franc
CE         Choix Economique                                                        SQ              Sawmill Quality
CS         Choix Supplimentaire      SSQ            Select Sawmill Quality
FOB      Free-on-Board     FAS            Sawnwood Grade First and
KD        Kiln Dry                               Second 
AD        Air Dry        WBP           Water and Boil Proof
Boule    A Log Sawn Through and Through MR              Moisture Resistant
              the boards from one log are bundled                      pc         per piece      
              together                      ea                each      
BB/CC  Grade B faced and Grade C backed MBF           1000 Board Feet          
              Plywood   MDF           Medium Density Fibreboard
BF         Board Foot F.CFA         CFA Franc        
Sq.Ft     Square Foot               Price has moved up or down

Source: ITTO'  Tropical Timber Market Report

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