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Particleboard, MDF and EWPNorth American Market Updates for 2018
Steven HoneymanEconomist, Wood Products
RISI North American ConferenceOctober 10, 2018
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• Particleboard Will new capacity create supply issues?
• MDF Will offshore imports remain a significant source of supply?
• LVL Demand is growing, will capacity keep pace?
• Wood I‐joists What effect will rising input costs have on profitability?
Overview
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• Particleboard Arauco North America – Grayling, MI (424 MMSF, 2018) Kronospan LLC – Eastaboga, AL (311 MMSF, 2019) Egger Group – Lexington, NC ($700 million, 2020)
• MDF Swiss Krono – Barnwell, SC (170 MMSF, 2019) Cal Ag – Willows, CA (113 MMSF, 2019)
• LVL Roseburg – Chester, SC (10 MMCF, 2019)
New Capacity
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North American Particleboard: Forecast Summary
Demand
Prices
Demand for particleboard produced in the USA and Canadawill grow 2018 and continue increasing in 2019‐2020, driven by growth in housing starts and a strengthening furniture market.
Particleboard capacity in the USA and Canada will increase significantly as new mills begin operating in 2018‐2019.
Demand/Capacity Ratio will surpass the 80% level by 2020 assuming that operational capacity will be actively managed as new mills begin operation.
Prices will be relatively flat with rising input costs putting upward pressure on prices as producers look to maintain margins.
D/C Ratio
Capacity
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North American Particleboard ConsumptionFurniture Drives Growth
0
1
2
3
4
5
6
7
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐in
ch Basis
Furniture Residential
R&R Other Industrial
Nonres. Const.
North American Particleboard DemandResidential Construction Becoming More Significant
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0
1
2
3
4
5
6
2005 2010 2015 2016 2017 2018 2019 2020
BSF, ¾‐in
ch Basis
Other Res. Const. Furniture
35%
52%
41%
40%
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• Demand for North American particleboard is largely met by domestic producers in the USA and Canada
• Imports represent a small portion of the total Just 6.3% of total consumption in 2017 (228 MMSF)
• A strong US dollar has made the North American market more attractive Up from 1.8% of supply in 2013
• The import share of supply is unlikely to climb significantly over forecast
Source of North American Particleboard
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North American Particleboard Offshore Imports Will Remain Flat over the Forecast
0.0
0.2
0.4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch Basis
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North American Particleboard Markets TightenOperational capacity growing slightly slower than demand
0
1
2
3
4
5
6
7
8
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch
Capacity Demand
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New Capacity Increases Nameplate LevelsOperational capacity will need to be actively managed
0
1
2
3
4
5
6
7
8
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch
Nameplate
Capacity
Demand
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North American Particleboard Demand/Capacity Ratio
50%
55%
60%
65%
70%
75%
80%
85%
90%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
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Rising Input Costs Squeezing MarginsHigher wood and resin costs driving increases
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
$/MSF, ¾
‐Inch Basis
Total Costs
US South
US West
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Particleboard Profitability Will ImproveThe US West still lagging
0.800.850.900.951.001.051.101.151.201.251.301.35
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Mill Rea
lization/Av
erage Total C
ost US South US West
Full cost breakeven
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North American MDF: Forecast Summary
Demand
Prices
Demand for MDF produced in the USA and Canadawill grow steadily over the forecast between 2018‐2020, driven by strong growth in residential construction.
MDF capacity in the USA and Canada will grow as a new mills begin operating in 2019‐2020.
Demand/Capacity Ratio will approach the 85% level by 2019. Growing demand will largely be met by capacity growth.
Prices will increase modestly as costs push prices higher. Competition from imports will continue to limit producer pricing power.
D/C Ratio
Capacity
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North American MDF ConsumptionResidential uses drive growth
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐in
ch Basis
Furniture R&R Residential Other Industrial
North American MDF DemandResidential construction is MDF’s largest end use
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0
1
2
3
4
5
2005 2010 2015 2016 2017 2018 2019 2020
BSF, ¾‐in
ch Basis
Other Res. Const. Furniture
53%
39% 33%
51%
North American Particleboard Consumption Will Continue Exceeding MDF
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0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch Basis
Particleboard MDF
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• MDF imports are a significant share of supply in the North American market
• In 2017, imports represent 34.8% of total consumption That’s 1.2 BSF of imported MDF
Up from an average of 28% between 2010 and 2015
• Barring further strengthening of the US dollar or significant price increases, the import share will remain flat over the forecast New capacity will add domestic sources of MDF to meet growing demand
Sources of North American MDF
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North American Offshore MDF Imports Will Set New Historical High
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch Basis
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North American MDF Markets TightenCapacity and demand growing at similar rates
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch
Capacity Demand
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New Capacity Beginning Operation in 2019Operational capacity approaching nameplate levels
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BSF, ¾‐In
ch
Nameplate Capacity Demand
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North American MDF Demand/Capacity Ratio
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
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MDF Production Costs Will RiseWood and resin prices driving costs higher
150200250300350400450500550600650
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
$/MSF, ¾
‐Inch Basis
Total Costs
US South
US West
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MDF Profitability Remains Near Historical HighsThe US South continues to be higher than the US West
0.800.850.900.951.001.051.101.151.201.251.301.351.40
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Mill Rea
lization/Av
erage Total C
ost US South
US West
Full cost breakeven
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North American LVL: Forecast Summary
Demand
Prices
Demand for LVL in North America will increase significantly in 2018 and continue growing in 2019‐2020, driven by growth in housing starts and as flange material in I‐joists.
LVL capacity in the USA will increase as the new mill will add nearly 10% to North American nameplate capacity levels and will begin operating in 2019.
Demand/Capacity Ratio will rise and approach the 90% level by 2019. New capacity in 2019 will prevent the market from tightening further.
Prices will rise due to growing demand and tighter markets giving producers pricing power to pass along increased input costs.
D/C Ratio
Capacity
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LVL Consumption Driven by Housing StartsWill surpass previous peak in 2019
0
20
40
60
80
100
120
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Million Cu
bic Feet
Single‐Family Multifamily I‐Joists Other
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LVL Demand and Capacity Will Set Historical Highs
0
20
40
60
80
100
120
Million Cu
bic Feet
Capacity Demand
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LVL Capacity Reaching Nameplate Levels
0
20
40
60
80
100
120
Million Cu
bic Feet
Nameplate Capacity
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LVL Demand/Capacity Ratios TighteningApproaching 90% level
0.4
0.5
0.6
0.7
0.8
0.9
1.0
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LVL Profitability Dips in 2018Will rise over forecast
1.0
1.1
1.2
1.3
1.4
1.5
1.6Price/Variable Cost
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North American I‐joist: Forecast Summary
Demand
Prices
Demand for I‐joists in North Americawill continue to recover, growing significantly between 2018 and 2020, driven by growth in single‐family housing starts.
I‐joist capacity will expand over the forecast and approach nameplate levels by 2020.
Demand/Capacity Ratio will increase over the forecast period and approach the 85% level by 2019 and remaining elevated in 2020.
Prices will trend slightly higher as growing demand allows producers to pass along cost increases.
D/C Ratio
Capacity
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I‐Joist Growth Closely Tracks Single‐Family StartsDemand will remain below previous peaks
0
200
400
600
800
1,000
1,200
1,400
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Millions Linea
r Fee
t
Single‐Family Multifamily Other
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Wood I‐Joist Market Still RecoveringDemand will remain below previous peaks this cycle
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Million Line
ar Fee
t
Capacity Demand
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Wood I‐Joist Operational Capacity Reaching Nameplate Levels
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Million Line
ar Fee
t
Nameplate Capacity Demand
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I‐Joist Demand/Capacity Ratio Tightening
0.4
0.5
0.6
0.7
0.8
0.9
1.0
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I‐Joist Profitability Will Dip with Higher Input CostsWill remain strong historically
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Price/Va
riable Co
st Ratio
Softwood Flange
LVL Flange
North American Cross‐Laminated Timber Study
37
Special Market Analysis Study
• Analysis of the North American CLT market
• 15‐year forecast of demand and capacity by end‐use market at the country level
• Discussion of all active and announced CLT mills
www.risi.com/CLTNorthAmerica
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NEW!NEW!
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• Particleboard: With new capacity coming on line over the forecast, operational capacity will need to be actively managed
• MDF: Margins will remain historically high, continuing to attract offshore imports
• LVL: The announced new capacity will be needed as the market tightens over the forecast
• I‐Joist: Demand is still recovering, and despite increases in input costs, margins will remain healthy
Conclusions
Thank you for your attentionFor more information:
North American Lumber & Wood Panels 5‐ and 15‐Year Forecastswww.risi.com/lumber5yearwww.risi.com/lumber15yearwww.risi.com/woodpanel5yearwww.risi.com/woodpanel15year
Lumber, Structural Paneland PB/MDF Commentarieswww.risi.com/lumbercommentarywww.risi.com/structuralpanelcommentarywww.risi.com/pbandmdfcommentary
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Steven Honeyman, [email protected]