January 18, 2023
Forest Products
Panel Stats: Production declines as demand softens
Our view: North American structural panel production was down y/y and q/q as demand softened; recall, approximately 60% of OSB demand and 25% of plywood demand is typically driven by new residential activity (please see page 6 of our Wood Products Primer for more information). With housing starts slowing (please click here), the Random Lengths panel composite price has fallen by ~22% since the end of Q322.
Event: The APA released its Q4/22 North American Structural Panel report.
Highlights
North American panel production decreased 5.8% y/y and 5.4% q/q in Q4 — APA statistics showed a 481 mmsf y/y decrease (-5.8%) in total structural panel production, with production also decreasing 5.4% q/q. OSB production was down 4.7% y/y (-278 mmsf), as production decreased in Canada (-81 mmsf) and in the United States (-197 mmsf). Production of OSB for flooring, sheathing, other applications decreased 4.3% y/y, 2.6% y/y, and 26.4% y/y, respectively, partially offset by a 23.9% increase in OSB produced for siding applications. In plywood, North American production was down 8.3% y/y (-203 mmsf), on decreases in both US (-10.0%; -201 mmsf y/y) and Canadian (-0.5%; -2 mmsf y/y) production. By end use, US production of sanded plywood was down 33.6% y/y, flooring was down 12.7%, sheathing was down 3.9%, siding was down 9.3%, and other products were down 25.3%.
Implied structural panel consumption decreased 8.0% y/y and 6.4% q/q — Implied OSB consumption decreased 7.6% y/y in Q422, driven by a 12.4% y/y decrease in Canadian consumption and a 7.2% y/y decrease in US consumption. Implied plywood consumption fell 8.8% y/y, due to a decrease of 10.8% y/ y in US consumption, offset by a 2.6% y/y increase in Canadian consumption. OSB's share of the North American structural panels market was 68.5% in the quarter, up q/q from 67.4% in Q322, and up y/y from 68.2% in Q421.
Offshore plywood imports decreased 19.6% q/q while offshore OSB imports decreased by 33.8% q/ q — Offshore imports decreased 21.4% q/q in Q422 as offshore plywood imports decreased 101 mmsf q/q to 413 mmsf and offshore OSB imports decreased 24 mmsf q/q to 47 mmsf. We think the weaker pricing trend through Q322 and Q422 drove the decrease in imports.
EWP production takes a step lower — According to the APA, I-joist production was down 38.0% y/y to 127 mmlf in Q422, which also represents a 33.0% decline q/q. Glulam production was down 8.1% y/y and 8.8% q/q, while LVL production was down 16.5% y/y and 24.3% q/q.
West Fraser's Q422 results could provide clarity on Allendale mill start-up — We think West Fraser could potentially be in a position to provide an update on its Allendale, South Carolina OSB mill with its Q422 results. Recall, the company purchased the mill in 2021, and has been working through upgrading and optimizing the facility before restarting production. West Fraser stated with its Q322 results that it expected the mill to be ready by the end of Q123 (although it noted that the restart would not occur until "warranted by customer demand"), and that it had nearly reached 40% of its planned staffing target at that time, so we think the project is likely nearing completion. We think there are two potential scenarios to consider: (1) the company delays restarting the mill given the challenging outlook for OSB in 2023, despite Allendale likely being a low-cost mill in West Fraser's portfolio once fully ramped up; or, (2) the company proceeds with the start-up in mid-2023 (possibly offset by slowing production at other mills in its portfolio), potentially discouraging future OSB capacity additions that have yet to make substantial progress and helping improve the industry supply-demand balance over the medium term.