North America Panel Outlook: 2012 to 2013
By Russ Taylor and Alice Palmer
The prospects for the North American panel industry – OSB, plywood, MDF and particleboard remain firmly tied to the U.S. economy and particularly the housing industry. With housing stalled since 2007-2008, and with only modest gains likely in 2012, the fortunes of the panel industry will be similar to what has been seen since 2009: too much capacity chasing too little demand.
The greatest impact has been on the OSB sector, where an unprecedented level of OSB mill curtailments and permanent closures has occurred since 2006, with over two dozen mills out of commission. In parallel, the particleboard and plywood industries have seen similar levels of closures, but the downturn in these sectors started in the late 1990s and not the early 2000s. MDF has seen only a few closures, but it is also the smallest sector and has not been immune to the housing crisis.
A summary of the forecasts for OSB and plywood to 2013 is provided, excerpted from WOOD MARKETS Group’s recently released report, WOOD MARKETS 2012 – the Five-Year North America Lumber and Panel Outlook: 2012-2016.
OSB and PLYWOOD
The main drivers that continue to influence the fortunes of OSB and plywood include the recovery of the U.S. economy, and especially housing markets, along with the return to a healthy U.S. financial and credit sector. The WOOD MARKETS 2012 economic forecast continues to foresee a slow recovery in 2012 and into 2013 as a result of some slow changes in foreclosure rates, housing prices, unemployment rates, and new and existing home-inventory levels (which have limited new residential starts). U.S. housing starts were mired in the range of 550,000 to 600,000 units between 2009 and 2011, and modest gains are forecast in 2012.
As in its last three annual forecasts, WOOD MARKETS 2012 continues to forecast a slow recovery in housing starts, calling for a slower buildup to 2014, and then greater acceleration to 2016. The WOOD MARKETS 2012 forecast believes that housing starts in the current decade will be considerably lower than other forecasters are predicting, and below those of the 2000s, due to the direct impacts of fundamental structural changes in U.S. credit markets, housing markets and buyer sentiment.
Since OSB consumption remains heavily correlated to housing (especially single-family) demand, new residential construction normally accounts for more than two-thirds (and up to three-quarters) of all OSB usage. However, this has been averaging only 45% to 46% between 2009 and 2011 — a level at which it is forecast to remain through 2014 — due to reduced total housing starts and declining single-family starts.
Plywood continues to be impacted by a decreasing market share of sheathing panels in floors, walls and roofing as lower-cost OSB increases its share in all three segments. However, plywood is more diversified in other end-use segments, e.g., industrial and remodelling, and is less dependent on sheathing products.
U.S. structural panel consumption reached 41.7 billion sf in 2005, an all-time high, and bottomed out in 2009 at 20.9 billion sf. WOOD MARKETS 2012 forecasts steady increases for U.S. structural panels, with demand in 2011 expected to be near 21.0 billion sf (actually lower than 2010’s 21.6 billion sf), rising to 22.0 billion sf (+4.8%) in 2012 and higher in 2013 (to 24.5 billion sf (+11.4%), led mainly by growth in OSB).
Canadian structural panel consumption should recover from a low of 3.3 billion sf in 2009 to 4.1 billion sf (+6.0% annually) in 2013.
U.S. OSB Production Outlook
U.S. OSB production peaked in 2005 and 2006 at over 14.9 billion sf, and bottomed out at 9.6 billion sf in 2009. This 36% decline (5.3 billion sf) is equivalent to the full production of 10 modern OSB mills (or a higher number of smaller ones). It is estimated that OSB production declined from 10.3 billion sf in 2010 to about 10 billion sf in 2011, and is forecast to rebound to 11.5 billion sf in 2013 (not far off its lows in 2009–2011).
Canadian OSB Production Outlook
From just 4.5 billion sf in 2009 and 5.0 billion sf in 2010, production is forecast to rise slowly, reaching over 6 billion sf in 2013. Canadian OSB exports to the U.S. bottomed out at 2.75 billion sf in 2009 and were up marginally in 2010 at 2.8 billion sf; they are forecast to be close to 4.0 billion sf in 2013.
Plywood Production Outlook
Like OSB, U.S. plywood output is tied directly to the rebound in housing/R&R and is forecast to recover slowly (from 8.6 billion sf in 2009 and 9.1 billion sf in 2010) to reach about 9.5 billion sf in 2013. The U.S. South is projected to grow its market share of domestic plywood while the U.S. West struggles with higher log and operating costs relative to market prices.
Canada’s plywood output at remaining mills should rise slightly, moving from 1.6 billion sf in 2009 and 1.77 billion sf in 2010 and 2011, to over 1.8 billion sf in 2012 and 2013.
Relative flat prices are expected in 2012 and 2013 – details are in the full report as well as WOOD Markets Monthly International Report.
MDF and Particleboard
After a third straight year of rock-bottom demand, non-structural panel producers face a long, slow recovery in 2012, 2013 and beyond.
MDF and PB Demand Trends
The year 2011 was the toughest one yet for North American non-structural panel manufacturers. From the peak in 2005, consumption of particleboard and MDF in the U.S. and Canada dropped by about 40% to 2009, where it has remained basically unchanged ever since. North American particleboard consumption decreased slightly from 3.3 billion sf in 2009 and 2010 to 3.2 billion sf in 2011. It is forecast to increase only slightly to 3.3 billion sf in 2012 (45% below its 2005 peak).
MDF consumption has remained static at 2.4 billion sf from 2009–2011 and is forecast to reach over 2.5 billion sf in 2012 (32% below its 2005 peak). The trend toward MDF taking an increasing share of the non-structural panel market continued in 2011. The growth in the laminate flooring and mouldings sectors — both heavy users of MDF — has offset the decline in the North American furniture and other industrial markets.
MDF & PB Production Trends
Collectively, North American particleboard and MDF shipments are projected to hit a new low of 5.0 billion sf in 2011, after two years (2009 and 2010) of hovering around 5.1–5.2 billion sf (levels not seen since the late 1980s). Combined U.S. and Canadian output is forecast to slowly rebound from the lows achieved in 2011, reaching near 5.5 billion sf in 2013.
|The market for panel products is significantly impacted by U.S. housing start numbers.|
Product-wise, particleboard took a harder hit than MDF, with shipments dropping by 4% in 2011 versus 0.5% for MDF. In 2012 and 2013, MDF is expected to recover about twice as fast as particleboard. Canadian production declined by 9% in 2011, compared to a 0.4% drop in the US. For 2012 and 2013, both countries’ production is forecast to improve at about the same rate.
WOOD MARKETS 2012 concludes that North American panel manufacturers are facing ever-increasing materials costs, both for wood fibre (such as sawdust and shavings) and for resins. With increasing competition from the bio-energy sector for fibre to feed wood pellet plants, the costs of sawdust and other wood waste materials have been rising. The costs incurred for resins are also going up, due partly to an overall increase in resin prices (caused by higher petroleum prices) and partly to a need to shift to pricier resins to meet Phase 2 of the California Air Resources Board (CARB) formaldehyde emission standards (required in all U.S. states). The cost crisis is dealing with some of the uncertainty surrounding the new Boiler Maximum Achievable Control Technology (MACT) rules, which should impact panelboard mills less than originally expected.
WOOD MARKETS 2012 predicts that the operating environment for 2012 and 2013 will continue to be tough. However, it is after 2013 when market dynamics should turn – a super-cycle for wood products is expected, but the precise timing will remain the major question.
By Russ Taylor, President; and Alice Palmer, Consultant, International WOOD MARKETS Group Inc., Vancouver, BC Canada
a Extracted from WOOD MARKETS 2012 — The Five-Year North America Lumber & Panel Outlook 2012–2016 - see http://www.woodmarkets.com/p_wmbook.html
Detailed summaries appear in WOOD Markets Monthly International Report.