Features Mills Sawmilling
Structural panels: outlook 2014–15

Dec. 18, 2013 - Structural panel producers started the year 2013 amid a wave of excitement: housing starts had been rising for four months; panel prices were at levels not seen since the housing peak in 2004– 05; and a spate of mill reopenings had already been announced. After a long period of inactivity, building materials were lurching ahead.
Fast forward to December 2013: housing starts have flattened since March; supply and demand have moved into balance; and prices have retreated. However, while markets are less than exhilarating, the "floor price" for structural panels is higher (likewise panel consumption) than before the upswing. The "big surge forward" in early 2013 has been replaced by steady forward momentum that continues to hinge on a rebound in housing starts.

Demand trends
The uptick in new U.S. housing construction that began in the second half of 2012, in conjunction with strong repair and remodeling activity and improved industrial uses, has led to a rise in structural panel demand through 2013.
• Total U.S. plywood consumption is estimated to have risen from 8.8 billion sf in 2012 to some 9.3 billion sf in 2013 (+6.0%); and
• Total U.S. OSB consumption is estimated to have risen from 14.1 million sf to 15.7 million sf (+11.1%) over the same period. 
In contrast, Canadian panel consumption declined in 2013, reflecting a pullback in new home construction versus 2012:
• Total Canadian plywood consumption is estimated to have fallen from 2.3 billion sf in 
2012 to about 2.1 billion in 2013 (-7.6%); and
• Total Canadian OSB consumption also declined, but by less: from 2.1 million sf in 
2012 to ~2.0 million sf in 2013 (-2.9%).

Demand outlook
Over the next five years, the forecast for U.S. housing calls for a slow rise toward its historical (and sustainable) level of 1.5 million starts. For 2014 and 2015, this could mean annual increases of around 15%, or 125,000–175,000 additional starts per year. Consequently,
• U.S. plywood consumption is expected to rise by 5.9% in 2014 (to 9.9 billion sf), and by a further 6.9% in 2015 (to 10.06 billion sf); and
• U.S. OSB consumption is forecast to grow even faster, moving up by 9.6% in 2014 (to 17.2 million sf), and then by 13.3% in 2015 (to 19.5 million sf).

With housing starts expected to stabilize in Canada in 2014 and rise in 2015, total panel consumption (plywood/OSB) is forecast to grow by 3.9% in 2014 and 13.7% in 2015. Most of this will be due to an
increase in OSB consumption, as
Canadian plywood consumption is
anticipated to level off in 2014 and
then decline by 3.8% in 2015 (due
mainly to declining B.C. plywood
output). OSB's market share of
Canadian structural panel consumption is finally expected to
surpass that of plywood in 2014,
as occurred long ago in the U.S.

Production trends and outlook
When OSB prices surged in August/ September 2012 (on a strong rise in housing), OSB producers reacted by announcing several mill reopenings. However, the startup time (from announcement to first shipment) of some six months caused panel output to lag demand, and prices rose until Q2/13.

Overall North American structural panel production is estimated to have grown by 6.7% in 2013, and total OSB output is expected to have risen from 16.8 billion sf in 2012 to about 18.4 billion sf (+9.6%); plywood output is thought to have increased from 11.0 billion sf to ~11.3 billion (+2.5%).

Over the next two years, the outlook calls for OSB output to expand rapidly in both the U.S. and Canada to meet U.S. demand growth:
• U.S. OSB production is forecast to rise in 
2014 by 10.9% to 13.4 billion sf, and in 2015 
by 9.6% to 14.7 billion sf; and
• Canadian OSB production will rise more 
slowly at first, growing by 4.9% in 2014 to 6.6 billion sf, followed by +18.6% in 2015 to 7.9 billion sf as more mills reopen.

Plywood output will grow more slowly given that OSB's market share continues to rise:
• U.S. plywood production will expand by 4.6% 
in 2014 to 9.9 billion sf, and then by 5.9% in 
2015 to 10.5 billion sf; and
• Canadian plywood production will be flat at 
+0.5% to 1.9 billion sf in 2014, subsequently dropping to 1.8 billion sf (-3.8%) in 2015.

OSB capacity: mills return to "wait and see" mode
When consumption/prices shot up in H2/2012, a flurry of OSB reopening announcements were made, starting with the September 2012 news that Georgia-Pacific would finally 
open its nearly completed Clarendon, SC mill in Q1/13 (it opened in Q2). Four more announcements followed, concluding with news in February from Norbord (reopening its Jefferson, TX mill in mid-13) and Tolko (planning to reopen its Athabasca, AB plant in Q1/14). In addition, Louisiana-Pacific announced the addition of a third shift to its now 100%-owned mill in Peace Valley, AB.

The OSB price crash in Q2/13 
brought an abrupt halt to mill-reopening announcements. With 
only one scheduled (and one 
hinted at) for 2014, it appears 
that panel producers are taking 
a "wait and see" approach to 
capacity additions. With 2.2 billion
s of supplemental North American 
panel consumption likely in 2014 
and a further 3.1 billion sf in 2015,
more capacity restarts will be 
needed. WOOD MARKETS' panel production/consumption model
 assumes that three to four OSB 
mills will restart in 2014, and a possible three (to even five) in 2015. However, demand and prices will be pivotal in how this scenario eventually plays out.

Price forecast
With a spate of newly reintroduced OSB capacity and an unpredictable U.S. housing market, OSB prices are likely to remain flat until at least Q2/14 (see our price forecast, page 11). Plywood prices, which generally follow OSB, are also expected to ease. With consumption gradually improving through 2014, supply should tighten during the year, increasing prices. However, supply-chain disruptions, abrupt changes in panel demand, and rapid capacity reintroductions could easily upset the supply/ demand balance, causing price volatility similar to that seen in the second half of 2012/beginning of 2013. Indeed, with up to ten OSB mills still curtailed, the potential for supply to exceed demand will exist for at least three years.

Conclusion
Prices have now fallen from their peak in March 2013, but they have found a floor of about US$50/Msf higher than their levels through much of 2011 and the first part of 2012. Significant OSB capacity has been added in 2013 and more will come online in 2014 and 2015. While no longer buoyed by giddy price increases, structural panel manufacturers have reason to be cautiously optimistic given that continued (yet volatile) growth will be a reality for several years to come.

Excerpted from Wood markets 2014 — the solid Wood Products Outlook • 2014 to 2018.

December 18, 2013  By Alice Palmer Consultant for Wood Markets