North American Panel Markets:
The Pain Continues
Presentation Outline
• US Woodbased Panel Markets
– US Economic and Housing Outlook
– Structural Panels (Softwood Plywood and OSB)
– Nonstructural Panels (Particleboard and MDF)
• Mexico Panel Market Outlook
• Brief Comments on South American Markets
2
Sub-Par Recovery in US GDP: Housing A
Brake Not a Booster Rocket!
Sources: BEA & CFPA
3
US Housing Markets
• Demographic Fundamentals Are Solid
– Pent-up demand will be a factor … before the decade is over!
• But Economic Fundamentals Are Weak
– Household formations are being delayed by high
unemployment, slow income growth and consumer uncertainty
• Elements in Place for Recovery
– Sales, production and prices appear to have hit bottom;
inventories of unsold homes are in decline
– Affordability is great … if you qualify for a mortgage!
– Rental demand is strengthening; boost for multifamily
construction
4
Post-1990 Surge in Home Ownership is Being
Reversed: What is “normal”?
5
New and Existing Home Sales: Have They
Bottomed?
Thousands, SAAR
8000
1600
7500
Existing
1400
New (Right)
7000
1200
6500
1000
6000
800
5500
600
5000
4500
400
4000
200
3500
0
00
01
02
03
04
05
06
07
08
09
10
6
Unsold Inventory of New Single-Family
Homes and Months Supply: Historic Lows
7
Affordability at Very Attractive Levels
Mortgage Payment as a % of Average Household Disposable Income
15%
8.5%
13%
7.5%
11%
6.5%
9%
Affordability
Mortgage Rate (R)
Q1 Q2 Q3
7%
5.5%
4.5%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 10 10
8
US Housing Production:
RISI Base Case Outlook Through 2025
2.5
Million Units
Mobile
Multi
Singles
2.0
1.5
1.0
0.5
0.0
95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25
9
Home Size and Mix Matter!!
SINGLE-FAMILY HOMES ARE A LOT LARGER THAN
OTHER TYPES OF HOME CONSTRUCTION
•
Average 2009 US Home Sizes (Square Feet):
» SINGLES
2,382
» MULTIS
1,171
» MOBILES
1,594
10
Average Single-Family Home Sizes
Thousand SF
11
Single-Family Home Share of Total
Conventional Starts
Share (%)
12
US Furniture Production Bottomed in
2009/2010: Will It Start to Recover in 2011?
US Furniture and Related Production, 2002=1.00
13
What Will Happen to US Furniture Imports as
Domestic Markets Recover?
Billion, $2009
14
Slow Recovery in Housing Will Be Reflected in
North American Structural Panel Demand
BSF, 3/8-Inch Basis
15
Higher US OSB Consumption Needs Strong
Single-Family Housing Starts
BSF, 3/8-Inch
16
How Large is North American OSB Capacity?
BSF, 3/8-Inch
17
Will Total NA Structural Panel Capacity Slip
Further Before Climbing as Demand Recovers?
BSF, 3/8-Inch Basis
18
Recovery in NA D/C Ratios a Matter of Timing of
Demand Growth and Capacity Rebound
19
OSB Prices Climbed Above Cost After Mid-2009;
Back to Cost Floors by Sep. 2010!
$/MSF
20
Plywood More Profitable Than OSB: But Prices
Have Recently Collapsed
$/MSF
21
OSB Prices: Dependent on Recovery in Housing
Demand and Pace/Timing of Capacity Restarts
7/16-Inch OSB in the South (West)
$/MSF
22
OSB Will Struggle to Stay Profitable in 2011
Average Mill Realization/Average Total Cost
23
Forecast for SYP Plywood Prices
1/2-Inch, 3-ply CDX (Westside)
$/MSF
24
Plywood Profitability Rebounded in 2010, But
Levels Will Not Be Sustained in 2011
Average Mill Realization/Average Total Cost
25
Conclusions: Structural Panels
• The strength and timing of housing’s recovery will largely
determine the forecast outcome for wood products markets.
•
•
•
•
•
•
Remainder of 2010 and first half of 2011 will be very difficult for producers
as demand generally lags behind year-ago levels.
No new total consumption records expected before late in the decade,
although OSB should set new records around mid-decade.
Effective operating capacity is substantially lower than name-plate. As
demand recovers, capacity will come back on-stream in lagged response.
Current market conditions will postpone the re-start of capacity.
Ramp-up of currently operating mills to full capacity will largely meet the
rebound in demand through 2012; mothballed capacity unlikely to be reopened before 2013 at the earliest.
Average demand/capacity ratios rebounded in 2010, but are likely to move
sideways to lower through much of 2011 before again climbing in 2012.
Prices and profitability will be under downward pressure in the first half of
2011 unless production runs consistently below year-ago levels.
26
Structural and Cyclical Pressures Persist in
North American PB & MDF Panel Markets
BSF, ¾-Inch
27
Furniture and Residential Construction Dominate
North American Particleboard Consumption
BSF, ¾-Inch
28
Furniture and Residential Construction Also
Key to N. American MDF/HDF Consumption
(94%-95% of Total Domestic Consumption)
BSF, ¾-Inch
29
Will MDF/HDF Consumption Overtake PB?
Largely Depends on Furniture …
BSF, ¾-Inch Basis
30
How Should We Measure North American
Particleboard Capacity?
BSF, 3/4-Inch
31
Forecast for PB Effective Operating Capacity
NA Particleboard Capacity Still Too High Even With These Lower Estimates?
BSF, ¾-Inch
32
PB Demand/Capacity Ratios Will Remain
Very Low; MDF/HDF Ratios Average Higher
(Depends on Import Levels)
33
Weak Dollar and Increased North American
HDF Capacity Have Reduced MDF/HDF
Imports: How Far Will They Rebound?
BSF, ¾-Inch – Offshore Imports
34
N. American Particleboard Inflation-Adjusted
Prices: The 1990s Were the Golden Years!
$2009/MSF, ¾-Inch Industrial Prices
35
Particleboard Profitability Will Be Hard to Detect
Over the Next Few Years
Mill Realization/Avg. Total Cost
36
North American MDF Inflation-Adjusted Prices:
Nothing Like the Early to Mid-1990s Again!
$2009/MSF, ¾-Inch Prices
37
MDF Profitability Recovered in 2010, But
Uncertainty Surrounds 2011
Mill Realization/Avg. Total Cost
38
Conclusions: Nonstructural Panel Markets
March to Different Drummers
• Particleboard’s outlook is a lot less positive than that for MDF/HDF
– Even with an optimistic forecast for North American furniture
production, in-place particleboard capacity is excessive
– Without aggressive capacity closures, it will be difficult for
particleboard producers to gain pricing power over the next few years
– Production costs are worrisomely high relative to history, especially
outside the South; this could threaten industry’s competitive position
• MDF/HDF seem better positioned than particleboard but with
30%+ of that market served by off-shore imports, North American
producers are vulnerable to added off-shore competition
particularly if North American pricing proves attractive enough to
offset a weak US dollar.
39
Mexico’s Wood Panel Markets
40
Mexico’s Panel Markets Tumbled in 2009, But
Rebounded in 2010
• Strong growth in fiberboard consumption has offset weakness
in particleboard
• 2011 – Prognosis is positive providing Mexico’s domestic
economic growth remains healthy
– Export opportunities will be limited by slow US recovery and weakening
US dollar
– Mexico’s plywood and particleboard producers most at risk; growing
import threats and loss of market share (also to other types of panels)?
– Fiberboard and OSB imports represent major growth opportunities
– Will Mexican particleboard production recover to match past peaks?
41
Mexico and ABC Countries: A Generally Short
and Shallow Recession … Except for Mexico
Sources: IMF & CFPA
42
Mexico: Recovery in 2010 Supported By Healthy
Domestic Markets Even as US Languishes
2006
2007
2008
2009
2010
2011
2012
GDP
4.9
3.3
1.5
-6.5
4.8
3.8
4.2
Industrial
Production
5.9
1.7
-0.6
-10.2
8.3
4.8
5.0
Consumer
Prices
4.1
3.8
6.5
3.6
4.4
3.8
3.7
% Change
43
Mexican Panel Consumption Rebounded in
2010: New Records in 2011-2012?
Thousand M3
44
Mexico’s Plywood Market Remains an Import
Story
Thousand M3
45
Mexico’s Fiberboard Markets Shrugged Off the
Recession: Further New Records To Be Set
Thousand M3
46
Mexico’s Particleboard Producers Struggle to
Recover As Market Share is Lost to MDF
Thousand M3
47
Panel Consumption in Mexico
Thousand M3
2006
2007
2008
2009
2010
2011
2012
660
668
713
578
653
689
711
Particleboard 641
691
523
386
489
566
619
Fiberboard
347
351
331
312
373
412
450
67
35
85
74
86
94
101
Plywood
OSB
TOTAL
1,715 1,745 1,652 1,350 1,601 1,761 1,881
48
Miscellaneous Considerations:
Brazil and Chile
49
Brazil and Chile Have Enjoyed Healthy Growth
Despite Recession and Earthquakes …
• Fiscal stimulus and the run-up to an election boosted Brazil’s
economy strongly, especially in the first half of 2010
• Chile has been quick to recover from the February
earthquake; growth in 2011 will outpace 2010 as rebuilding
provides significant economic stimulus to the whole
economy
• Ramp-up of new MDP and MDF capacity in Brazil has been
controlled; consequently pricing held up well, at least
through mid-year
– Further industry shakeout and consolidation? Slower economic
growth in 2011 could result in another wave of M&A
50
Brazil’s Panel Production Recovered in 2010
Million M3
Total = 7.55
51
Chile’s Rebound Initially Held Back by
February Earthquake
Million M3
Total = 2.04
52
Climbing Out of the Chasm: Global Lumber
Markets Still Need North America and Europe …
Million M3
53
… But Global Panel Markets Will Recover Sooner
and Faster Because of China’s Strength
Million M3
54
Conclusions: Latin America
• The Great Recession so far has done surprisingly
minimal damage to Latin America’s wood panel markets
• MEXICO’s panel markets have been hurt more than most
but are in a healthy recovery which should persist at
least through 2011
• Domestic market growth will be key to sustained
increases in panel consumption in Mexico, Brazil and
elsewhere in Latin America
• Fastest growth in panel markets will be in MDF/HDF and
OSB
• Chilean producers will buck the weak overall trend in
plywood output as capacity expands further
55