The Timing of Curtailed and New Mill Start-Ups is the Key Wild Card for 2018/19.
In WOOD MARKETS’ new five-year OSB & Plywood Chapter forecast, finding the right balance between OSB mill start-ups relative to the expected strong U.S. housing demand will be a key wild card over the next few years in North America. After seeing an oversupply of OSB production in early 2014 from the start-up of 7 curtailed OSB mills over an 18-month period, a more balanced OSB market finally emerged in mid-2015 – this situation should continue until sometime later in 2017. After that, the challenge is to see if new capacity restarts and imports can balance with overall panel demand growth – similar to previous market cycles and price volatility that OSB has experienced.
These details and further analysis of commodity panels and lumber were released last week in the report, WOOD MARKETS 2017 – The Solid Wood Products Outlook: 2017 to 2021 by International WOOD MARKETS Group, Vancouver, BC.
As our forecasts have warned over the past few years, the timing of increased OSB supply – from the restarting of another 7 curtailed OSB mills and 2 greenfield mills that will come on stream at some point in 2017-2021 – will determine the exact trend in prices over the forecast period. The forecast shows that OSB demand should increase by over 6 billion sf between 2016 and 2021 – that balances relatively well with the expected new capacity additions and normal annual incremental production gains. However, the exact timing of new capacity installations and their start-up date relative to rising demand will have the greatest impact on OSB prices – this “Goldilocks effect” of trying to get the temperature right, or the balance of OSB supply versus demand, will create some price volatility at various times in the next five years. For OSB, this is nothing new, where prices could easily move by US +/-$50/Msf or more in consecutive quarters.
As a result, OSB prices are expected to improve in 2017, as demand remains strong and production tightens, before new mills start up. With five OSB mills scheduled to start up by the end of 2018, the pendulum is expected to swing later in 2018, to a temporarily over-supplied market at times. As a result, OSB prices could ease in 2018 and bottom out in 2019 until the incremental supply base is absorbed. After that, rising prices are again expected.
Any potential delays in OSB mill capacity restarts will improve the whole market situation by minimizing any oversupply situations. The real question is: will any company’s strategy be to delay capacity restarts to allow for a better market situation, where their competitors who have restarted mills earlier will then benefit from this situation? History would suggest “no”. And the other question is: if the OSB market situation looks too good, will any new greenfield mills be announced to create more over-supply issues?
Full details of the five-year outlook for the U.S. and Canada’s lumber and panels consumption, imports, exports, production and price trends are available in Wood Markets 2017 – The Solid Wood Products Outlook – 2017 to 2021.