RISI Wood Timber Outlook for US Plywood and OSB Demand 2016 2018 % Change Real Economic Activity...
Transcript of RISI Wood Timber Outlook for US Plywood and OSB Demand 2016 2018 % Change Real Economic Activity...
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RISI Wood & TimberStructural Panel Outlook
Jennifer CoskrenSenior Economist, Wood and Timber
North American Conference October 2016
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• Recovery in US housing will drive demand growth Other end‐use markets growing, but at a more subdued rate Both plywood and OSB demand will grow OSB will grow almost four times as fast as plywood
• Supply will expand to meet growing demand but not fast enough Plywood producers remain disciplined OSB Production will converge with demand in the medium term Demand will put extreme pressure on existing capacity
• Prices will trend upward with heightened volatility Seasonality and supply response will result in increased volatility
Overview: Improving Markets and Increased Volatility
Structural Panel Markets Are MatureUS Structural Panel Single‐Family Use Factor, Sq. Ft. Panel/Sq. Ft. Floor Space
0.0
1.0
2.0
3.0
4.0
5.0
6.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
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US Housing Will Drive North American Structural Panel Demand HigherDemand by End Use, BSF, 3/8‐inch Basis
0
1
1
2
2
3
0
10
20
30
40
50
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18Residential Industrial Repairs & RemodelingNon Residential Offshore Exports US Housing Starts (R)
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Other End‐Use Markets to Grow, But Not as Quickly as ResidentialNA STP Other End‐Use Consumption, BSF, 3/8‐inch
012345678910
2012 2013 2014 2015 2016 2017 2018
Industrial Repairs & Remodeling Non Residential
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Increased Exposure to Residential Construction Drives OSB Demand 2015 NA Demand by End Use, BSF, 3/8‐inch Basis
33%
0
5
10
15
20
OSB Plywood
Offshore ExportsNonresidentialRepairs & RemodelingIndustrialResidential
51%
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Tale of Two Markets: Different Growth Outlook for US Plywood and OSB Demand
2016 2018 % ChangeReal Economic ActivityResidential Construction (Billion sq. ft. floor space) 2.75 3.66 32.9%
Residential Repair and Remodeling (Billion 2005$) 138.6 156.0 12.5%
Industrial Production (2007=1.0) 1.00 1.05 5.2%
Nonresidential Construction (Billion 2005$) 174.0 207.0 19.0%
Structural Panel Demand (BSF) 30.2 35.6 17.9%
Plywood 10.2 11.7 14.7%
OSB 20.0 23.9 20.0%
Housing Will Drive OSB Growth of 8 BSF from 2012 Levels by 2018 Change in US and Canadian OSB Demand from 2012 Levels, BSF
0.01.02.03.04.05.06.07.08.09.0
2013 2014 2015 2016 2017 2018
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OSB Dependence on Residential Construction Yields Higher Growth Year‐over‐Year Percentage Change in North American OSB and Plywood Demand
‐3%
‐1%
1%
3%
5%
7%
9%
11%
13%
12 13 14 15 16 17 18
OSB Demand GrowthPlywood Demand Growth
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OSB’s Share Will Increase Due to Exposure to Residential ConstructionNA Structural Panel Demand, BSF, 3/8‐inch Basis
45%
50%
55%
60%
65%
70%
05101520253035404550
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
PlywoodOSBOSB Share (R)
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Secular Decline in Plywood Demand Has Ended and Growth Will ResumeNA Plywood Demand by End Use, BSF, 3/8‐Inch Basis
0
5
10
15
20
25
30
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Residential Industrial Repairs & Remodeling Nonresidential Offshore Exports
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OSB Operating Capacity Will Increase, but Not Enough to Meet DemandNA Capacity at Year End, MMSF, 3/8‐Inch Basis
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12
14
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28
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30
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Operating Capacity NA OSB Demand
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Additional OSB Supply Comes from Three Main Sources• Restarted Capacity
4.5 BSF of capacity has been restarted Additional restarts would come in US South
• Norbord restart for Huguley highly unlikely before 2017
• Potential for Capacity Expansion Martco will open the Corrigan TX mill at the end of 2017 Demand levels will put pressure on existing capacity
• Offshore Imports A strong demand and pricing environment attracts offshore producers While offshore imports will likely increase, even at the cyclical peak in
2005 they only accounted for 3.0% of demand. They will remain a marginal source of supply
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Restarted OSB Capacity (Mostly) Behind UsIdle Capacity, MMSF, 3/8‐Inch Basis
Location/Name Ownership Capacity (MMSF)
Grenada, MS Georgia Pacific 375
Mount Hope, WV Georgia Pacific 375
Skippers, VA Georgia Pacific 365
Huguley, AL Norbord 500
Val D’Or, Quebec Norbord 340
Chambord, Quebec Louisiana-Pacific 470
High Prairie, Alberta Tolko 650
Spring City, TN Huber 450
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Demand Will Put Pressure on Existing OSB Capacity by 2018North American Demand/Capacity Ratios
2006 2012 2018
Demand on North American Mills (BSF) 25.8 17.0 26.4
North American Operating Capacity (BSF) 28.0 20.3 28.1
Demand/Capacity 92% 84% 94%
In-Place Capacity (BSF) 28.0 26.1 28.1
Demand/Capacity 92% 65% 94%
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OSB Operating Capacity Has Become More ConcentratedLargest Producers’ Share of Total Operating Capacity
2011
Top 5 Producers Other
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2015
Top 5 Producers Other
Ownership of Idle Plywood Capacity Remains ConcentratedNorth American Plywood Capacity, 3/8‐Inch Basis, BSF
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0.000
5.000
10.000
15.000
20.000
25.000
2006 2016
Operating Idle (GP) Idle (Other)
Recent Plywood Capacity Additions and PlansLocation/Name Ownership Capacity (MMSF) Restart Date
Omak, WA Wood Resources 190 2013
Rogue Valley, OR Boise Cascades 220 2013
Chapman, AL Coastal FP 100 2015
Springfield, OR Swanson Group 135 2016
Louisville, MS Wood Resources 400 2016
Total Capacity Additions 1,045
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Plywood More Exposed to Offshore Imports than OSBNorth American Offshore Imports, 3/8‐Inch Basis, BSF
0%
2%
4%
6%
8%
10%
12%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
% of Demand Plywood% of Demand OSB
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US and Canadian Plywood Imports: June 2016Offshore Imports YTD, 3/8‐Inch Basis, MMSF
2015 Total 2016 YTD 2015 YTD % Change
Chile 317.9 180.5 170.5 6%
Brazil 303.0 303.0 121.3 150%
China 94.9 38.5 48.9 -21%
Uruguay 15.0 28.9 18.0 61%
Malaysia 1.2 0.5 0.2 121%
Other 27.3 8.1 2.3 248%
Total 758.0 559.0 361.4 55%
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Weaker Canadian Dollar Helped Canadian ProducersOSB Variable Production Cost by Region, US Dollars per MSF, 3/8‐Inch Basis
0
20
40
60
80
100
120
140
160
2000 2006 2016 2018
USA Canada
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Rising Wood Costs in the West Drive Variable Costs for Plywood HigherPlywood Variable Production Costs by Region, US Dollars per MSF, 3/8‐Inch Basis
0.0
0.5
1.0
1.5
2.0
2.5
0
50
100
150
200
250
300
350
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
US South US West West Wood Cost/South Wood Cost (R)
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Elevated Price Levels Will Yield Tighter Spreads Between Plywood and OSBOSB Discount to Plywood (%)
‐10%
0%
10%
20%
30%
40%
50%
60%
70%OSB Discount to Plywood (%) Average, 2000‐2009
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OSB Profitability Is Rising, but Remains Below Highs from the Middle of the Last Decade
‐50%
0%
50%
100%
150%
200%US South CA West
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Plywood Profitability Has Eased Along with PricesMill Realization/Total Production Costs
‐40%
‐20%
0%
20%
40%
60%
80%
100%US South US West
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Risks
• Demand– The housing recovery stalls
• Supply– Plywood and OSB capacity are added at a faster rate than
we currently assume– Imports grow more quickly
• Prices– Same as always: Lots of risk
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Conclusions
• Recovery in US housing will drive demand growth− Other end-use markets growing, but at a more subdued
rate− Both plywood and OSB demand will increase
• OSB will grow much more quickly than plywood• Supply will expand to meet growing demand
− OSB overproduction remains less of a near-term concern− Plywood producers remain disciplined, although imports
are surging− Production on the plywood side will lag relative to OSB
• Prices trend upward with heightened volatility for OSB− Demand will put pressure on existing capacity
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Thank you for your attention!For more information:
Lumber, Structural Panel and PB/MDF Commentarieswww.risi.com/structuralpanelcommentary
Lumber & Wood Panels 15‐Year Forecastwww.risi.com/woodpanel15year
Special Study:OSB Capacity Expansion and the Development of US Pellet Exports: Impacts on Woodfiber Supplywww.risi.com/OSBcapacity