OSB Going Cheap
Speakers at the WSU Wood Composites Symposium in Seattle question just how much extra panel capacity can be absorbed in a cooling housing market.
By: Bill Tice
More than 200 participants from all four corners of the globe converged on Seattle, WA in early April for the 40th International Wood Composites Symposium and Technical Workshop. The four day event, which was held between April 10 and 13 at the Red Lion Hotel, was sponsored by the Washington State University (WSU) Wood Materials and Engineering Laboratory (WMEL), WSU Extension, and the Madison, WI-based Forest Products Society.
While as always the event features a wide array of technical workshops, this year’s event also focused on markets, global competition, and new capacity. On the latter front, Dennis Hardman, president of APA – The Engineered Wood Association in Seattle, gave a sobering presentation called If We Build It, Will It Sell? Structural Wood Panel Market Opportunities and Threats. In his talk, Hardman told the crowd that a softening housing market in the US is a concern for panel producers.
“The market development function is rather important to me right now because our members are looking to us at APA to help figure out how to bridge the market demandproduction capacity gap that everyone knows is coming,” he stated. “The problem we face is compounded by the fact that the housing market, which has been red hot for the last couple of years, is beginning to soften. And that’s not good because new residential construction last year consumed a record 56% of all structural wood panels used in North America. That’s a lot of eggs in one basket.”
New capacity looms
Hardman went on to talk about new Oriented Strand Board (OSB) mills coming on line over the next five years, and what impact that will have on the panel industry.
“As of last year, there were 65 US and Canadian OSB mills, located primarily in the US Southeast, the Upper Midwest, and Western and Eastern Canada. That number is expected to go up dramatically over the next five years,” he explained, as he pointed to 13 red dots on a map. “Those are the locations of 13 new mills that are soon to open, under construction, or planned by several companies.”
In terms of capacity, Hardman predicted with the new mills on-stream there would be an additional 10.7 billion square ft of OSB on the market when you include capacity creep at existing mills.
“If you add up all of that new capacity and then subtract production based on market demand, we’re left with a significant demand-capacity gap – about 8.7 billion square ft.,” he added. “I recently heard an industry analyst remark that he could understand how the OSB industry could shoot itself in the foot, but what he couldn’t understand is how they could reload so fast.”
Hardman says the message here is pretty clear. “The industry needs to expand market demand to avoid mill closures.” He says they need to look at ways to increase exports and replace imported panels with domestic product, and need to look more at industrial markets, and non-residential construction, such as schools, low rise office buildings and senior living facilities that typically have used steel and concrete.
In answer to the question asked in his presentation’s title – “If We Build It, Will It Sell?” he says, “Yes. My answer today is yes – but with a couple of important qualifiers. Yes, we can certainly make some difference, even a significant difference. We at APA, in fact, are just now embarking on a three-year plan designed to generate approximately 1.7 billion square ft. of additional annual demand by 2009. The emphasis will be on those key markets that I just described.”
That still begs the question of what to do with the other 7 billion square feet.
Other speakers addressed future supply and demand issues, including Aaron Wells, director of economic analysis for the Composite Panels Association, which is a North American trade association representing 93% of composite panel production in the US, Canada and Mexico. For particleboard, Wells says, “Further capacity rationalization may occur to bring supply closer to demand and restore long term confidence. “ For Medium Density Fiberboard (MDF), he expects, “Greater consumption is likely, especially in residential demand for molding and millwork, cabinets and laminate flooring,” while for hardboard, he says, “Innovation will be required to offset declining demand and the small size of the industry.”
Geoff Rhodes, managing board member of the European Panel Federation (EPF) in the UK provided more of an international perspective on the markets, and presented a rosier picture for European producers. For particleboard, he said reduced demand had been offset by reduced production, but for OSB and MDF, he says the European producers have experienced annual increases in both production and consumption, especially for MDF, which has become a rising star in Europe.
“In 2005, the production is estimated to have risen some 13.7% to reach around 13.5 million m3, which is definitely a record level again,” he explained when talking about MDF. “The consumption has been developing in the same line, with an estimated increase of 4.7% last year. The driving force behind the increases in 2005 was laminate floor production and exports.”
Several participants wondered that if European lumber producers can cash in a hot US market, why can’t more of the reverse happen with expanding European panel markets?
Next year’s symposium is being held at the same venue in Seattle. Mark your calendars for March 26 to 28, 2007 at the Red Lion Hotel on Fifth Avenue.
