North America’s Oriented Strand Board (OSB) market is expected to improve in 2017, with the right balance between OSB mill start-ups and strong U.S. housing starts a decisive factor for its sustainability, according to a new report, WOOD MARKETS 2017 – The Solid Wood Products Outlook: 2017 to 2021 by International WOOD MARKETS Group.
After seeing an oversupply of OSB production in early 2014 from the start-up of seven curtailed OSB mills over an 18-month period, a more balanced OSB market finally emerged in mid-2015, a situation that should continue into late 2017. Sustained growth will depend on whether new capacity restarts and imports can balance with overall panel demand growth.
The timing of increased OSB supply – from the restarting of another seven curtailed OSB mills and two greenfield mills that will come on stream at some point in 2017-2021 – will determine the exact trend in prices over the forecast period.
OSB demand should increase by over 6 billion sf between 2016 and 2021. 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, creating some price volatility at various times in the next five years.
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. 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.
- U.S. South OSB production is forecast to almost meet the previous OSB peak production volume (of 2007) in 2017 – moving from 2016’s anticipated 11.2 billion sf to over 15 billion sf in 2021 (+7% annually from 2016).
- A growing concern will be the raw material supply and costs for existing, restarted and new OSB mills, particularly in the U.S. South. The rapid expansion of wood pellet manufacturing plants continues to rise at a very fast rate where some of the new pellet capacity as well as sawmill expansions will both compete directly with OSB mills for pulp logs and small SYP sawlogs
- If new wood biomass competitors in the U.S. South drive raw material supply prices higher, Canadian OSB mills may develop a raw material cost advantage (over and above the lower Canadian dollar), relative to U.S. South mills, and could gain market share.
- The strength of the U.S. dollar versus most global currencies, combined with increasing US demand, will drive imports from Canada and attract more offshore supply higher over the forecast period.
- Canadian OSB exports are forecast to increase from 6 billion sf in 2016 to 7.6 billion sf by 2021 — 28% increase over this five year period, with 98% going to the strong U.S. market.
- From an estimated 8 billion sf in 2016, Canadian OSB output is forecast to rise to over 10 billion sf in 2021 — an average annual increase of 5.6% from 2016 to 2021.