Finally, the long expected recovery in the overall economic climate seems to be taking shape. During the summer holidays of 2003, the European economy picked up slightly. In addition, the European Commission revised its GDP forecasts upwards and remains optimistic for a revival in the overall economy in 2004. Consumer confidence still lingers on the downside, but has been improving from the second half of 2003. Since 2000, EU GDP growth has been declining, but should have bottomed out at less than 1% last year. The forecast for this year points to a significant recovery and a return to higher growth of 2%, accelerating to 2.4% in 2005.

The construction industry, one of the most important outlets for the sector, is also set to recover soon, mainly supported by continued dynamic growth in renovation and maintenance activities. On the other hand, residential construction in the EU, accounting for 45% of total building projects, is anticipated to bottom out only in 2004, before returning to adequate growth in 2005. Although the furniture industry remained rather subdued during 2003, the improvements in consumer confidence are assumed to enhance furniture demand in 2004. These positive expectations clearly give impetus to a more optimistic outlook for the wood based panels industry.

For particleboard, the EPF market indicator has been flattening with a slight downward tendency during the last two years, in line with the results recorded for production. Nevertheless, the fourth quarter of 2003 is firmly expected to initiate a recovery to growth and a revival in the particleboard industry during 2004. For MDF, the market conditions stabilised at a slightly lower level than in previous years, although the overall outlook for the end of the year remains optimistic.

Difficulties for particleboard

An evaluation of 2003 shows that the situation for particleboard has been fairly unfavourable. The year 2000 with its outstanding growth of 6% up to 36.5 million m3, remains the absolute record. After that, the industry faced increasing difficulties due to the overall weak market conditions and declining demand.

Particleboard production within the 22 European countries represented by EPF continued its negative trend for the four consecutive quarters to mid-2003, reducing average annual growth from 1998 to just 1%.

However the industry’s decline slowed to –1.4% in the third quarter last year and it does now seem that production in Europe stabilised at around the 36 million m3 mark. And positive news from the industry on full order books and increased production towards the end of the year indicates that overall production growth did actually resume in the last quarter of 2003.

After the first six months of last year, particleboard production was estimated at around 3.6% behind 2002’s first half result. But, following the improved results for the third quarter and the positive outlook towards the end of the year, the output trend, while remaining negative for the year as a whole, is expected to show an improvement.

Subsequently, this much-awaited rebound is firmly anticipated to initiate a renewed period of growth in 2004. Stocks are still some way off the average rate. But, following the upbeat prospects reported by manufacturers at the end of last year, they are expected to return close to average.

Consumption of particleboard lagged more than 4% behind during the first six months of 2003. Another overall slight decline was expected, but followed by a rebound from the end of 2003. The recovery in production will be supported by a marked upturn in demand.

Serious restructuring

The particleboard industry has gone through serious restructuring since 2001, involving major capacity reductions in many countries, which further hindered a return to the record levels of 2000.

Two years ago the industry underwent its greatest restructuring, the closure of nine plants and several capacity reductions. A total capacity of more than 1 million m3 was taken out of the market, representing almost 3% of industry output and, again, in 2003, several closures reduced the capacity by more than 0.9 million m3.

The coming years will probably witness more restructuring. But some also predict new investment as manufacturers look to exploit new growth opportunities in an improving economic climate where they can be more confident about profitability rates.

And despite the sector’s recent difficulties, particleboard will remain the most important wood based panel type within Europe. It still accounts for about 65% of the total wood based panels output.

Meanwhile MDF continues to expand its market share rapidly. By the end of 2003 it accounted for 20% of overall wood based panel industry production.

Following continued strong growth rates in production and sales throughout the year, MDF is widely considered to have a bright future. Last year total output crossed the 11 million m3 mark, up from 10.5 million m3 during 2002, while consumption exceeded the 10 million m3 threshold after reaching 9.6 million m3 in 2002. The laminate flooring industry remains the major engine behind growth in consumption of MDF, accounting for more than 15% of the total end user markets.

With a current capacity of 12 million m3, the industry is clearly manufacturing at nearly full stretch. For 2004, continued growth in production, spurred by some new capacities and a further increase in demand and exports are anticipated.

OSB improves

The youngest member of the panel family, OSB, improved at moderate rates during the first half of 2003, but picked up vigorously during the third quarter, approaching the strong growth levels previously seen in 1999 and 2000.

OSB sales have been spurred by dynamic exports, while many companies are now operating close to full capacity. On a year-end basis for 2003, OSB production was expected to amount to 2.5 million m3, while demand is foreseen to reach 2 million m3. An equal increase is anticipated for 2004, although much will depend on whether the announced investment in Romania will actually become operational.

In addition, excellent news is reported on OSB stocks. Since the end of 2002, they have been falling continuously, with a very sharp drop of 27% in the third quarter.

Bio-energy competition

A current major issue in the wood based panels industry relates to the increasing costs for the raw wood material due to fierce competition with the bio-energy industry in terms of wood procurement.

Sawmill co-products are the main raw material for the wood based panels industry, especially for particleboard, where they account for more than 60% of total wood supply, against almost 40% for the MDF industry. The increasing use of biomass, which primarily exists of wood, has a significant negative impact on the wood based panels industry. The strong competition with the subsidised bio-energy sector in many European countries already caused some particleboard and MDF plants to close down and continues to undermine the particleboard industry’s recovery. EPF is therefore taking action to highlight this issue and propose solutions, as a major problem consists of the high costs for mobilising the available wood raw material and the governmental intervention in favour of biomass.

But overall, the future of wood based panels looks better and 2004 is expected to initiate renewed economic growth and regained consumer confidence, supporting an earlier recovery of the construction and furniture markets. Consequently, enhanced demand for wood based panels will give impetus to further innovation in the production and application of particleboard, MDF and OSB, discovering new horizons for MDF and OSB, while sustaining the leading position of particleboard within one of Europe’s most dynamic and pioneering industries. n