Panels & Furniture Asia Mar/Apr 2018

THE MALAYSIAN MDF MANUFACTURERS ASSOCIATION ( MMMA ) 66 NEWSLETTER MARCH/APRIL 2018 BUZZ THE T he New Year 2018 and the Lunar Calendar Year of the Dog were heralded with great fanfare and proclamations of the virtues of the wood and timber industry with headlines such as: Timber Exports Continue Uptrend , Furniture Market Poised for Growth , Plywood Prices Sky Rocketing , U.S. Lumber Outlook Very Positive , Further Increase In Timber Prices , GST Bears Fruit in Indian Growth for Timber Products , Second Largest Post-war Economic Expansion in Japan , The Dragon Soars – Chinese Furniture Market , Bright Prospects for Wood Products Export , The World Prefers Wood Products … I could go on but I think you get the picture. These headlines are genuine and by and large backed up by statistics and data. For the timber industry as a whole, this has been very welcome news. However if we look more closely, in particular, to the particleboard and Medium Density Fibreboard businesses in South East Asia, the news is not as positive. Basic economics comes into play and the industry finds itself once again with a huge imbalance between supply and demand. Over the past five years and for the next three years, an average of four new particleboard and MDF lines have either started or will start annually within South East Asia. The majority of this investment has been made in Thailand, Vietnam and Indonesia. The main drivers for this growth have been the demand for wood panel products required for the automated mass production of furniture. The other important factor is the availability of a relatively cheap, sustainable raw material – Rubberwood. These two factors joined together havemade South East Asia the most competitive producing region for MDF and particleboard in the world today. What lies ahead? So what does all this mean for the MDF and particleboard market in Asia for 2018? Unfortunately it is not looking very good at all. As supply raced ahead of demand, we saw a dramatic softening of particleboard prices at the end of 2017 and a similar oversupply situation developing for MDF at the beginning of 2018. This does not bode well for the industry and could result in dire consequences unless manufacturers act responsibly and with maturity. The situation is even more critical for Malaysian manufacturers as costs increase due to a strengthening currency and higher labour cost. Assuming that the global economy continues to grow robustly and the demand for furniture and panel products remains strong the industry will still face risks and challenges: 1. Investments in new plant and capacity remains in place for at least the next three years. The new lines ‘promoted’ by the big European machine manufacturers are far larger than previous models, with installed capacities of up to 2,000m 3 per day. Capacity increases are ‘step’ increases and not linear, so when a new line enters the market it has a disproportionate impact on supply. 2. Demand projections are based on robust global growth and strong demand from both traditional and emerging markets. Key demand drivers will be the U.S., China and India, any setbacks in these markets will adversely affect demand. Some MDF manufacturers are overly dependent on risky Middle Eastern markets; if these markets are disrupted, there will be a very large surplus supply volume potentially entering other markets. 3. Cost is relentlessly moving up as other raw materials (especially related to oil) and labour is gradually moving into an inflationary phase from a previous deflationary scenario. The U.S. Dollar has, by and large depreciated against major Asian currencies which has negatively affected business particularly in Malaysia. 4. The final critical factor is the availability of a sustainable and relatively cheap wood-based raw material. In Malaysia we realised many years ago that the ‘Rubberwood Era’ was fast coming to an end and this could be seen by the relatively small investments made in Malaysia over the past few years. Malaysian Rubberwood is now the most expensive in SE Asia and is also in critical decline with regards to availability. Thailand on the other hand has, by far the largest planted areas of Rubberwood in SE Asia, which has resulted in huge ongoing investments and a phenomenal increase in installed capacity. Thai MDF and particleboard is probably the most competitive in the world today. Investments in Vietnam have been large and successful but they will quickly reach a situation where Rubberwood will be in short supply and prices will increase. Indonesia has the second largest availability of