RISI Wood Timber Outlook for US Plywood and OSB Demand 2016 2018 % Change Real Economic Activity...

© Copyright 2016 RISI, Inc. | Proprietary Information

RISI Wood & TimberStructural Panel Outlook

Jennifer CoskrenSenior Economist, Wood and Timber

North American Conference October 2016

2© Copyright 2016 RISI, Inc. | Proprietary Information

• 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


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)


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


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%


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


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


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)


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


OSB Operating Capacity Will Increase, but Not Enough to Meet DemandNA Capacity at Year End, MMSF, 3/8‐Inch Basis

10

12

14

16

18

20

22

24

26

28

0

5

10

15

20

25

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


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


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


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%


OSB Operating Capacity Has Become More ConcentratedLargest Producers’ Share of Total Operating Capacity

2011

Top 5 Producers Other


2015

Top 5 Producers Other

Ownership of Idle Plywood Capacity Remains ConcentratedNorth American Plywood Capacity, 3/8‐Inch Basis, BSF


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


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


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%


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


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)


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


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


Plywood Profitability Has Eased Along with PricesMill Realization/Total Production Costs

‐40%

‐20%

0%

20%

40%

60%

80%

100%US South US West


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


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



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

RISI Wood Timber Outlook for US Plywood and OSB Demand 2016 2018 % Change Real Economic Activity...

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