EWP MARKET FORECAST
North American structural wood panel (plywood and oriented strand board) production is expected to total 31.66 billion square feet (3/8” basis) this year, down 18% from last year and 26% from the record 43.1 billion square feet produced in 2005, according to the annual fall forecast of APA—The Engineered Wood Association.
Production next year may be even slightly less, according to the forecast, with output falling another 3% to 30.87 billion feet. That outlook is based on the expectation that US single-family and multifamily housing starts will total just 880,000, down from about 910,000 this year. Housing starts are down by more than half since the peak of the housing market boom in 2005. Single-family starts have experienced the most severe declines, falling from 1.716 million in 2005 to an anticipated 610,000 this year.
Softwood plywood production is forecast to total 12.57 billion square feet this year, down nearly 14% from last year, while oriented strand board (OSB) output is expected to reach 19.1 billion feet, a decline of 20%. The larger drop of OSB production is a reflection of that product’s greater reliance on the residential construction market.
Declines are also forecast this year and next for engineered wood framing products, such as glulam timber, wood I-joists and laminated veneer lumber (LVL). Glulam production is expected this year to fall by 22% to 300 million board feet, I-joist production by 30% to 675 million linear feet, and LVL production by 27% to 55 million cubic feet.
The still unknown housing market low point remains a forecast wild card. Residential construction remains the single largest market for structural wood panels, although the percentage of North American production going to residential construction is expected to fall to 40%, compared with 48% last year and 61% in 2005.
Originally the APA felt the outlook for next year could be somewhat better if the Housing Recovery Act had the desired effect of stemming 400,000 foreclosures, perking up the credit system and getting more buyers into the market. In that case, there might be 100,000 additional single-family and multifamily housing starts, resulting in almost one billion square feet of additional structural wood panel demand. Despite talk of mortgage rescue packages for homeowners, it’s likely this rosier scenario is a dim hope now.
The industry’s production to capacity ratio is expected to drop this year to just 73%, down from 86% last year and a high of 97% during the peak of the housing boom in 2004-2005. This has made structural wood panels an extremely good bargain over the past several months compared with other building materials. According to the Bureau of Labor Statistics, the cost of steel and concrete products has increased 100% and 35% respectively over the last four years, while the cost of wood products has fallen six percent.
The APA expects much rosier conditions after next year. The longer term forecast is for the US housing market to begin a recovery in 2010, with housing starts rising to 1.55 million in 2011 and 1.9 million two years later. That would help boost North American structural wood panel production to a record 45.4 billion square feet in 2013.
Forescasters at APA – The Engineered Wood Association is not alone in seeing rising and then sustained demand for solid wood products. While the National Association of Home Builders (NAHB) just pushed off the timing of a home building recovery until at least the start of 2009 for sales, and late summer 2009 for starts, it’s all good after that.
After hitting a trough of below 900,000 total housing units by early 2009 (a 68% drop from the peak, the largest contraction since WWII), NAHB chief economist David Seiders says a very healthy two million units will soon be the new industry trend. This is based on household formation projections, housing replacement needs, and the growing second-home market. “Our current long-term forecast shows attainment of trend levels (2 million) by the latter part of 2012, following nearly four years of solid growth.”
The current recession will play havoc with the timing, but not likely the final outcome.