A new report by Australian industry analyst BIS Shrapnel indicates global production of medium density fibreboard (MDF) is set to boom in the five years to 2017. The upswing is attributed to a recovery in housing construction in the United States, and an expanding furniture industry and strong housing growth in Asia, South America, Australasia, Eastern Europe and Russia.
However, according to BIS Shrapnel’s latest Medium Density Fibreboard in the Pacific Rim and Europe 2013 – 2017 report, the boom in production could lead to a surplus of stock, which could limit price growth, unless non-producing regions pick up the slack.
Medium Density Fibreboard or MDF is used mainly for furniture manufacturing and for a wide range of applications in the building construction sector such as built-in cabinets, wall panelling and laminate flooring.
According to the report, the North Asia region will account for 54 per cent of the world’s MDF production, marking a shift away from traditional MDF powerhouses North America and Europe.
Report author and BIS Shrapnel senior manager Bernie Neufeld comments China alone will account for 51 per cent of all MDF production; the United States will account for just five per cent of global production, when 20 years ago it was the largest producing region.
Ironically, an increased demand in the recovering building sector and furniture demand in North America will be one of the key drivers for this growth; however, due to the global financial crisis the region will run into capacity constraints following the closure of mills over the past five years.
Economic Prospects – Recovering From the Global Financial Crisis
The downturn in housing construction in the United States reached the bottom of the cycle in 2009. Housing construction began to recover in 2010, and is well on the way to much stronger growth over the next five years. This recovery will drive economic growth not only locally but in many of its key trading partners around the world. It will also drive renewed demand for furniture, and ultimately the demand for MDF and particleboard. Housing construction in other key regions such as South America and Asia will also drive demand.
However, over the forecast period (2013-2017), this resurgence could result in capacity constraints emerging in North America, partly due to the reduction in production capacity in the region over the past five years. Neufeld says the pine beetle infestation in Canada will also place significant constraints on the supply of resources in the region over the next decade.
The development of the furniture industry as a major export industry has driven China to the status of the largest MDF manufacturing and consuming country in the world from a non-producer in the early 1990s.
Production, Consumption Forecast to Rise – But Surplus Could Hinder Price Increases
Domestic demand fuelled the furniture industry in China in the early 1990s, resulting in the establishment of many new production facilities and the introduction of modern technology in these plants. As domestic demand increased, and China began to export furniture, the furniture manufacturing industry expanded exponentially, as many foreign firms shifted their operations to China to take advantage of low labour costs, export subsidies, and improving quality standards.
However, over the forecast period, the focus will shift from an export led economy to domestic demand, which in conjunction with the increased demand in the US could place some constraints on the production and demand for MDF in China. Ironically, there is also a shortage of forest resources in North Asia.
Global production of MDF is projected to increase by more than 16 per cent to 99.1 million cubic metres in 2017, based on current expansion plans, and estimated capacity utilisation rates. By 2017, North Asia will produce 54 per cent of the world’s MDF, and China alone will produce 51 per cent. South America will be the third largest producing region, behind North Asia and Europe, and North America, which 20 years ago was the largest producing region, will produce less than five per cent of the world’s MDF.
However, consumption of MDF in the major producing countries is forecast to increase by 15 per cent to 92.8 million cubic metres in 2017, which is well short of the production forecast.
With the increase in production, consumption in non-producing regions such as the Middle East and Africa will need to exceed six million cubic metres to avoid a global surplus.
Regardless, over the next five years, as the global economy moves into an upward phase of the cycle, prices are projected to increase by an average of three to four per cent annually.