By Wade Vonasek and Brad Walseth

Though currently facing numerous challenges, many in the composite panel industry express optimism for the future.

According to the Composite Panel Assn., availability of raw materials has become a significant issue for a host of composite panel producers, in large part, because of curtailed sawmill operations during the current economic slowdown. Photo courtesy of Timber Products Co.

Like a majority of other industries, the composite panel industry is facing its share of challenges in 2009. Lower demand for products, scarcer availability of raw materials, and meeting state and federal requirements for formaldehyde emissions all are making life a little bit tougher for manufacturers of composite panels.

“The biggest issue facing the panel industry is the lackluster demand caused by the current economic situation,” says Donald Raymond, vice president of marketing for Uniboard Canada Inc. “The industry is cycling its mills, which is very inefficient. The industry as a whole has cut back spending on plant and equipment investment, which is not healthy in the long run.”

“[There is a] significant lack of demand for our products,” adds Chris Bailey, particleboard sales manager for The Collins Companies. “The industry is operating at levels that were thought to be impossible.” For example, according to the Composite Panel Assn. (CPA), 2008 shipping was down 14 percent to 6,894 MMSF and is down an additional 20 percent through May of 2009.

Roger Rutan, vice president of sales and marketing for Timber Products Co., says raw material availability is a big issue for the industry, and that it goes hand-in-hand with decreased demand. “Composite panels are made out of wood residuals, and when there are no orders coming in from the market, mills cut back on production so there’s less wood furnish to use,” he says. “Timber Products is hauling furnish longer distances and aligning ourselves with new partners to acquire the necessary materials.”

Flakeboard Vice President of Sales and Marketing Kevin Shotbolt agrees. “The lack of conventional dry fiber, such as shavings/sawdust, which will be consumed by biomass competitors, will only put more pressure on composite board mills,” he says. “Our company identified this issue years ago, and made capital improvements to allow our mills to utilize a considerable portion of ‘green’ or wet chips.”

“For panel producers the issue with the most long-term implications is the availability of fiber as a raw material, the less certain access to wood fiber and its volatile price, thanks in large part to curtailed sawmill operations during the sustained economic downturn,” says Tom Julia, president of the CPA. “Misplaced governmental policies that see wood as something to be burned are adding to the strain, and industry is determined to reverse this mentality and highlight the ‘best use of wood’ and its greater value to the environment in ways other than as a fuel.”

Formaldehyde emission standards, though considered a plus for the industry by many, still pose a significant challenge as well. In addition to recent California Air Resources Board (CARB) rulings, Rutan says the U.S. Environmental Protection Agency (EPA) is in the process of evaluating a national formaldehyde emission standard, likely to be adopted in 12 to 24 months. “It is also likely to read much like the CARB regulations, especially with regard to formaldehyde emission levels,” he adds.

It’s the Economy...
It is clear that the sagging economy has been the biggest challenge for the panel industry to overcome, but many experts think we have reached bottom and a recovery is forthcoming. They differ, however, in their assessments as to when the recovery will arrive.

Raymond says, “The economy has had a direct effect on the panel industry, affecting the industry operating rate and profitability. The general feeling is that we have hit bottom or are close to it. The recovery will be slow and long.”

Shotbolt agrees. “Our industry is still reeling from the massive drop in housing starts, “ he says, “and we see further mill curtailments or permanent shutdowns occurring over the next 6 to 10 months. We believe that we will be in this environment for another 12 months at least.”

“Every division in our company has been affected by the downturn,” adds Bailey. “Most divisions are just hoping to break even. We do anticipate a modest recovery to begin in 2010.”

Rutan is somewhat more optimistic. “It has been a tough road for composite panel manufacturers.” he admits, “However, while the kitchen cabinet sector has struggled the past 12 months along with the housing market, the need for composite panels in the institutional, educational and retail environment markets showed a promising level of activity in the first quarter of 2009.”

He points out that some geographic regions of the country are weathering the economic storm better than others. He also notes that although the retail store fixture business is down, it is not out, as his company’s mills still shipped a high volume of panels to customers that build those units.

Another reason for optimism, according to Rutan, is “many cabinet companies serving the residential market are now scaled to today’s current business level. They made the tough decisions on budgeting and staffing last year, so they are out there looking for business and taking orders. That is good for everyone.”

However, Rutan concedes that even with some promising first quarter signs, they have not yet seen any sustained activity. He does think that if the slow general recovery does take hold at the end of 2009, it will take the composite panel business with it.

“We feel like the industry will rebound within the next six to 12 months, but the industry as a whole will not see total recovery from where it once was,” says Nevin Groce, president of Avian Lightweight Board. “The bigger issue is how demand will grow as recovery happens. Unpredictable and violent shifts in demand will not be good for the industry and could possibly cause major problems throughout the supply chain. So the question is not when recovery will happen, but how will recovery be impacted due to demand.”

Dave Leding, chairman of the CPA, sums up the economic forecast as: “We are optimistic that the trends in consumer confidence will continue to rise and that liquidity and lending in the financial sector will start to improve as well. Thus, we may finally hit bottom sometime in late 2009, with the recovery coming in 2010. As 2010 progresses, we hope that the recovery will gain momentum and that this momentum will translate into stronger demand for composite products.”

The Future is Green
Judging by the comments from participating industry leaders, the green movement may be an important element that is leading the way back to economic recovery. All companies indicated demand for green products growing rapidly with no end in sight. The outlook was unanimous.

“With the slowdown in the economy, the pace of the green movement and the use of green products continues to grow in percentage numbers,” says Rutan. “If you look at the numbers, it is a healthy part of the business.”

Bailey agrees, “The green movement is benefiting our company. We are seen as leaders in that field and expect this market to grow significantly in the recovery.”
Shotbolt says his company has embraced customers’ needs and has developed many new products that he says are gaining considerable momentum in the marketplace.

Raymond also concurs. “The green movement continues to gain steam and is a positive for the industry as a whole. The composite industry has a great green story.” He adds that the company has seen “tremendous growth” over the last two years since they started a green product line.

Sustainability is one of the biggest buzzwords in the green movement and Rutan says the composite panel industry is at the forefront.

“There is an expectation that composite panel manufacturers are either getting certification or looking at it,” he says. “Composite panels are commodity products and you have to set yourself apart.”

What About Lightweight Panels?
Though environmentally friendly and requiring the use of less raw materials, lightweight honeycomb core panels are still not widely used in the U. S. market. Opinions are mixed as to if they will ever be used a significant amount in the U.S.

“The honeycomb core panel is catching on in the U.S.,” says Groce. “The factor that is leading to this product being used is simple — design flexibility. It allows for an efficient solution to the modern design trend we see today, utilizing simple but thick lines in furniture. The honeycomb panel is not a replacement for particleboard, [but] serves a specific purpose in the marketplace to achieve thicker looks without increasing overall weight. The added benefits include lower logistical costs, better conservation of resources and lower energy costs.”

“The main advantage to using lightweight panels is the weight savings, which transfers to products that are easier to move, handle and install,” says Ken McFadden, Stiles Machinery product manager for Torwegge Lightweight Panel/Composite Machines. “Reduced freight costs and less packaging are big factors. Also, thicker looking designs allow for more attractive furniture, and producing thicker lightweight panels can become significantly cheaper than solid particleboard.”

Others are not as upbeat in regards to lightweight panels. “We’ve investigated honeycomb core panels and seen very little traction in the U.S. marketplace so far,” says Rutan. “Honeycomb has been around a long time, but the issue with the product is its performance properties like screw holding. They will catch on, but it will be a while because customers are making sure [the companies] do the basics well first before considering new products.”

“Honeycomb, or traditional ‘board on frame’ products, are gaining some momentum, but slower than what we thought,” adds Shotbolt.

Challenges and Opportunities
Clearly, the economy presents the biggest challenge to composite panel producers, but Rutan points out that it is also the biggest opportunity. He believes the economic situation has helped Timber Products rethink how it sells its products, and this has made the company stronger.

Bailey agrees, and says the downturn has taught his company to focus on improving its operations. The company plans on being 15 percent more productive when the recovery hits.

Shotbolt says Flakeboard “learned many lessons during the slowdown, and will ultimately come out of this much leaner and smarter, and prepared for the future growth that will come.”

Raymond believes green and other value-added products will provide the biggest opportunities, and he says Uniboard is banking on this, as they are opening a new $160 million MDF facility in Moncure, SC, in the fourth quarter of 2009.