The Russian MDF Industry is on the verge of a serious crisis, due to a significant increase in imports in last a few months. The recent surge in imports of MDF to the Russian market has resulted in a decline in prices for domestic production and poses a threat to the development of local MDF factories.
The shortage of MDF, which took place in Russia in late 2011 and paralysed the local MDF furniture market has gone, but it resulted in a sharp drop in demand for MDF and HDF . This in turn resulted in the decline in prices for domestic production of MDF.
Alabuga free economic zone, where an MDF plant will be built by Turkish company Kastamonu Entegre
Last year, prices for MDF in Russia fell by about 30%, in particular from €340-370m3 to €250-270/m3 and, according to analysts’ predictions, the decline is set to continue this year.
This has resulted in a crisis in the market, among the major reasons for which are the excessive supply of MDF to the domestic market from China, taking into account a recent launch of new MDF and particle boards plants in Russia and Ukraine, while another reason is an unprecedented increase in MDF imports to Russia, expecially from China.
According to official data, only last year imports of MDF increased doubled. In 2012 410,000 tons (500,000m3) of MDF were imported, of which 39%, or about 200,000m3 were accounted for by China. Germany’s was the second largest import (with 77,400 tons, or 18.9%), followed by Belgium (35,900 tonnes), Poland (30,500 tonnes), Ukraine (26,600 tonnes) and France and Turkey (11,700 tonnes each).
According to the some of Russian MDF producers, Chinese imports are causing the most harm to local producers due to the fact that most MDF and particle board from China are imported through ‘grey’ schemes and sold at rock-bottom prices, which are about 20% below the average.
Due to a massive increase in imports from China, the leading local producers, among which are Kronospan and Kronostar, cannot achieve the desired level of sales and, therefore, receive less profit, particularly in the segment of boards for flooring.
Amid the ever-growing Chinese imports, local producers are forced to accelerate expansion in other, less profitable segments of the market, such as boards for furniture facades, interior doors and some others. However, even in these segments, the supply already exceeds demand. This results in falling prices and, if in Moscow the level of prices is still relatively high due to high living standards, then the situation in the regions remains catastrophic. The most complex situation is currently observed In the far east and the south of Russia, where the suppliers from China control almost 90% of local markets.
Due to aggressive Chinese expansion, local producers are bearing serious losses.
According to Pavel Korchagin, ceo of United Panel Group, one Russia’s largest manufacturers of boards, currently the value of the majority of Russian MDF plants has declined so much that investments do not allow them to become profitable.
Future prospects for the market remain clouded.
Russia’s recent accession into the WTO will result in the fact that, during the next four years, duties on imports of MDF to Russia will fall from 15 to 5%. This will result in further dumping by importers.
According to analysts of the Russian magazine Furniture Business, one of the leading Russian business publications in the field of furniture business and panel production, further market decline may lead to suspension of implementation of some major investment projects which have been announced by producers in recent years.
For example, among the projects which may be suspended are the launch of the MPC ‘Apsheronsk’ plant in the Krasnodar region, which will have the capacity to produce up to 300,000m3 of MDF and floor covering per year; the launch of the Igorevskaya woodworking integrated plant in the Smolensk region, with a capacity of 400,000m3 of MDF per year, as well as the project currently being implemented by the Turkish company Kastamonu Entegre, which involves building a plant for MDF production in the Alabuga free economic zone in Tatarstan, one of Russia’s most economically developed regions.
The commissioning of the plant, with a capacity of 420,000m3 per year, is scheduled for the middle of 2013.
In planning their projects, the investors were taking into account the price level for MDF on the basis of 2011 and 2012 years. At the same time almost no one expected that the decline in prices for their production in 2012 would amount to about 30%. In this regard, there is a possibility that taking into account the current market conditions, some of the potential investors will decide to revise their plans.
The situation is aggravated by the fact that MDF imports from China to Russia, according to analysts’ predictions, will continue to grow during the next several years.
Currently the annual volume of MDF production in China is estimated at 43 million cubic metres a year, which accounts for more than 50% of global production. Taking into account that the Chinese market is already saturated, the country will continue to increase its exports.
Being defenceless in the face of the evergrowing Chinese expansion, the only hope for Russian MDF producers is entrusted in the state, which may restrict the influx of further imports.
Among the major reasons for such measures could be non-compliance of Chinese imports to Russian ecological standards, due to the fact that the level of formaldehyde emissions in the Chinese products often exceeds all the allowed standards. This is contrary to the existing technical regulations in Russia ‘On the safety of furniture products’, which sets strict regulations on formaldehyde emissions.
In addition to the poor ecological standards of much of the Chinese production, the government may restrict imports if it receives evidence of the use of a dumping policy by Chinese manufacturers into the Russian MDF market.
At the same time, despite the ever growing imports, local analysts believe that the domestic MDF producers should not suspend the implementation of their investment projects, but rather expand them, since the demand for quality MDF among Russia’s leading furniture producers is steadily growing and they are not interested in the use of cheap Chinese products, being forced to import MDF from western Europe at high prices.
According to Alexander Nosko, CEO of Engelsskaya furniture factory, one of the leading furniture factories in Russia, currently Russia is experiencing a lack of production of high-density MDF suitable for deep milling. Therefore the producers are forced to import such boards from abroad, and in particular from Germany, where they are priced at more than US$23 per m2, which is a higher price for Russian producers and where customs duties are also included.
However the local producers do not agree with the statements of furniture producers, believing that the current shortage of high-density MDF in the market could be explained by the lack of cooperation between board and furniture producers.
Pavel Korchagin comments:
“The problem is not in the density of fibreboards. Russia currently has the production of MDF boards with the density of 750-800kg/m3, while in Europe and the United States this figure is 650kg/m3, and they are also milled. In this regard, the problem is not in the density of boards and insufficient interaction between the sides. All the domestic furniture factories have different equipment, different technologies, different processing methods and, finally, different objectives and different requirements for their boards. We are ready to work individually with our clients, taking into account their equipment and the demand for panels. But this causes a change in formulation, as well as manufacturing technologies, which means that the order should be large enough.”