"Russia effect" on wooden panels

Wood is perhaps one of the raw materials most affected by shortages. Its prices have followed an increasing trend for years. Rising wood prices and awareness of the need to sustainably manage forest resources have led to a strong development of substitute products, including engineered wood panels. These contribute to the reduction of the exploitation of virgin forests and offer solutions that are often superior in terms of uniformity, dimensional stability and resistance, compared to solid wood. Furthermore, the ability to produce panels tailored to specific thicknesses, dimensions and resistances opens up infinite design possibilities, from the construction of custom-made furniture to use in building structures and decorative components.

Panels based on wood particles and fibres

Within engineered wood panels, an important role, especially from the circular economy point of view, is played by panels based on wood particles and fibres, produced by pressing wood particles and fibers with adhesive resins. Within these panels it is useful to distinguish:

1. chipboard panels, produced from wood chips pressed and glued together. They are the simplest panels with the lowest production costs;
2. OSB panels, similar to chipboard, except using layers of wood chips, combined with a specific orientation. They are more resistant panels, used above all in construction;
3. MDF panels, produced with wood fibres. They are the most technically advanced panels, also excellent substitutes for solid wood for the production of furniture, floors and fixtures.

The 2021-2023 price cycle

After having recorded slightly rising prices during the first 20 years of this century, at the end of 2020 the prices of this type of panels recorded an intense phase of growth, culminating in mid-2022 with price levels on average equal to double the levels of 2019. Since mid-2022, a phase of price decline has been underway, however at a moderate pace, with prices continuing to be significantly higher than pre-crisis prices at the beginning of 2024.
The following table shows the average annual prices of the types of panels considered, expressed in terms of changes compared to 2019 prices. The 2024 price refers to the month of January only.

Change in prices of wood panels compared to 2019 levels

As shown in the table, in January 2024 only OSB panels returned to 2019 levels. Chipboard prices continue to be 33% higher. Even higher are the prices of MDF panels, the variation of which compared to 2019 levels is close to 50%.
In order to analyze the possible evolution of the price of these panels in the near future, we have developed an econometric study of their determinants.

Determinants of particle and wood fiber panel prices

Wood particle and fiber panels are obtained by pressing wooden parts with glues, generally derived from urea and formaldehyde. The wooden parts are made from marked wood or processing waste, especially conifers. We then estimated a regression model for the different types of panels, using as explanatory variables the price of scored fir wood, the price of flat coniferous wood, urea and formaldehyde. Among the possible regressors we also considered the consumer price index of the Euro area, as a proxy for the cost of labour and services in Europe. For the functional form of the model, the dynamic specification of Engle and Granger was used, with two equations, one for the short run and one for the long run. The estimation results are very good, with all parameters highly significant, high levels of explained variance and no autocorrelation of the residuals.

The following table shows the estimated parameters of the long-run equation which provide a measure of the role played by the different variables in explaining the variations in panel prices. The variables used in the estimation are expressed in logarithms. This allows the estimated coefficients to be interpreted as elasticity.

Estimation results for particle board and wood fiber panels

Panels	Price elasticity of inputs
	Labour	Sawn off	Plaques	Urea	Formaldehyde
Chipboards	0.18	0.38	0.30	0.17	0.19
OSB	0.00	0.96	0.00	0.00	0.00
MDF: thickness >9 mm	0.71	0.24	0.24	0.17	0.26
MDF: thickness 5-9 mm	0.96	0.10	0.21	0.21	0.22
MDF: thickness <5 mm	0.52	0.11	0.39	0.19	0.17

 

The regression results lead to a clear distinction between OSB panels and chipboard and MDF panels.
In the case of OSB panels, their price is determined only by the price of softwood lumber, which in turn is strongly influenced by the prices of softwood on the Chicago Mercantile Exchange (CME). This result confirms the prevalent use of wood chips obtained from coniferous sawn wood for the production of OBS panels and the limited use of glues.
In the case, however, of chipboard and MDF panels, their price is determined not only by the price of the wood but also by the wood in coniferous plates, whose prices in Europe are currently high, because the reduction in imports from Russia have not been replaced with imports from other countries^[1]. Chipboard and MDF panels are also determined by the prices of the glue, used to hold the wood particles and fibers together, and by the cost of labor, services and systems necessary for their production.

Conclusions

The analysis of the prices of particle and wood fiber panels and their determinants allows us to identify the high price of coniferous wood in planks as the reason for a price at the beginning of 2024 that is still between 30 and 50% higher than the price level of 2019. It is very likely that the supply of plank coniferous wood on the European market will remain limited even in the near future, with the effect of supporting its prices. Consequently, it will be difficult for the prices of chipboard and MDF to reduce the differential with the 2019 price level. The new price level of these panels can therefore be considered as "acquired".

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[1] For an analysis of the effects due to the lack of substitution of softwood wood imports from Russia in plaques, see the article "Opening of international markets and safety of raw materials".