20 | Focus on OSB: North America


$2000 $1800 $1600 $1400 $1200 $1000 $800 $600 $400 $200 $0


Jan-15


RL - OSB Composite INDEX OSB - 7,16”, US S.E.


PERFORMANCE IN 2023 TO REFLECT HOUSING MARKET DECLINE Inflation pressures have lessened, and the Federal Reserve Bank has decelerated interest rate increases. Since peaking at more than 7% in November 2022, mortgage interest rates have moderated. In February 2023, the conventional 30-year fixed mortgage rate was about 6.3%. Wells Fargo, the fourth largest mortgage originator in the US, currently predicts that the mortgage rate will fall to 5.4% by the end of 2023. However, the relatively high mortgage


Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Above: North America OSB price history (January 2015 to February 2023) SOURCE: RANDOM LENGTHS Jan-24 fell to a US$364/m3 (EBITDA margin = 16%)


average in Q4. Two of the principal production costs for


wood panels – adhesives and energy – are closely correlated with international energy prices. Crude oil and natural gas prices remained relatively low for more than a year after the pandemic started. Particularly since Russia’s invasion of Ukraine disrupted global energy markets, fossil fuel prices have increased. West Texas Intermediate crude oil started 2022 at US$75/barrel, peaked at US$114 in May, and ended the year at US$80. The major ingredients – lye, methanol, and phenol – of phenol formaldehyde (PF) resin are petrochemical derivatives. The authors occasionally review invoices for PF resin, and 2022 costs were about 70-80% higher than the pre-pandemic price. The Random Lengths newsletter reports


that OSB market prices in February 2023 are within a few per cent of the pre-2020 norm. While OSB manufacturing survivors at least broke even at typical pre-pandemic prices, higher manufacturing costs may mean that some OSB makers are not profitable with market prices at the level of three years ago. Around the start of 2023, several producers reduced output through temporary curtailments, shift eliminations, and maintenance shutdowns.


OSB MILL CAPACITY PROJECTS In 2021 when OSB prices were near historic highs, experienced operators announced additions of three modern mills. Huber announced a greenfield facility in Cohasset, Minnesota and Roy O Martin announced a second greenfield mill in Corrigan, Texas.


West Fraser purchased a closed mill in Allendale, South Carolina previously operated by Georgia-Pacific. Each mill was anticipated to start production in 2023 or early 2024. In May 2022, a fire in the multi-opening press destroyed much of Tolko’s OSB mill in High Prairie, Alberta. Tolko almost immediately announced it would rebuild a state-of-the-art mill. In February 2023, Huber cancelled plans


to build the Minnesota mill that would have been outfitted by Siempelkamp. Huber believed it could not overcome objections from neighbouring indigenous communities about the project’s environmental impact on ancestral lands in a timely manner. Huber now intends to build a greenfield OSB mill in another state, but has not announced a specific project. The Roy O Martin project in Texas that is based around a Dieffenbacher continuous press has suffered delays, but the current start-up goal is late 2023 or early 2024. The major upgrades to the South Carolina mill are scheduled for completion before Q3, 2023; however, West Fraser has not announced a specific date to commence operations. Tolko’s goal is to reopen the Alberta mill in late 2023 after installing a Dieffenbacher continuous press. Market demand doesn’t necessarily grow


following new supply. The pattern of the North American forest products industry has been a boom-and-bust cycle in which lack of capacity discipline eventually ends the good times of high prices. Relatively inefficient older mills often close soon after efficient state-of-the-art facilities open.


WBPI | April/May 2023 | www.wbpionline.com


rates will keep monthly payments unaffordable for many prospective homeowners. After 1.6 million and 1.55 million housing starts in 2021 and 2022, respectively, APA – The Engineered Wood Association consensus housing start forecast predicts a much lower 1.27 million units in 2023. APA predicts Canadian housing starts of 265,000 in 2023, which is not far different from 2021 and 2022. If 2023 housing starts match current predictions, OSB likely will remain close to pre-2020 prices. Additional OSB supply within the next 12 months will place downward pressure on market prices. At best 2023 could be modestly profitable for OSB makers. 


ABOUT THE AUTHORS Richard W (Rich) Baldwin, MBA is chief investment officer of Oak Creek Investments (Texas, US), and regularly consults for Asian, European, and North American engineered wood products makers. In recent years, he served as a strategic consultant for several project justifications including Winston Plywood & Veneer (Mississippi, US) and CalPlant I (California, US). Rich was visiting professor at Southwest Forestry University (Kunming, China) and previously worked for two Wall Street firms.


Richard F (Dick) Baldwin, PhD, CF is managing partner of Oak Creek Investments (Texas, US), and an investor in wood and non-wood businesses. In recent years, he served as general manager of Chester Wood Products (South Carolina, US), Moncure Plywood (North Carolina, US), Omak Wood Products (Washington, US), and Winston Plywood & Veneer (Mississippi, US). Dick is an instructor in the Forestry Department of Oregon State University (Oregon, US) and author of the 2016 industry primer Plywood and Veneer- Based Products.


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