North American wood products markets are recovering. Where will supply come from?
During the Great Recession, the biggest concern facing North American wood products markets was how to survive the collapse in demand. Demand on lumber mills fell 38%, or 30 BBF, from peak (2005) to trough (2009). Meanwhile, demand on structural panel mills fell 43%, or 19 BSF, and demand on nonstructural panel mills slipped 38%, or 3.1 BSF. Demand for wood products has begun to recover, and as this recovery accelerates, one important question is where supply will come from. FEA’s biannual report on the status of North American sawmills, the Sawmill Profiles and Panel Capacity Database, helps to answer this question.
First let’s look at lumber. The length and depth of the 2006-11 housing depression caused the size and structure of the lumber industry to shrink significantly. Curtailments took the form of indefinite closures, long-term idling of facilities, or outright abandonment. As demand started to recover, some of these measures are gradually being unwound. However, the downturn left in its wake structural impediments that have complicated and slowed the process.
Some impediments include the loss of logging capacity, the loss of markets for residues with the closing of pulp mills, the loss of usable fiber supply due to widespread forest die-off due to beetle epidemics, and finally insolvency, leading to permanent abandonment of facilities. The FEA report puts the current state of the industry into perspective and shines a light on its probable future course.
Since 2006 we have tallied 207 facilities that were affected in some form or another by a curtailment action that lasted over an extended period. These 207 complexes amounted to 19.5 billion feet of capacity, constituting a quarter of the industry at its 2006 apex.
After the lumber cycle bottomed in 2009, prices began to recover, and by the end of 2013 they had about doubled. Once again, sawmilling enjoyed comfortably positive margins, leading to the revival of some dormant facilities.
For 111 out of the 207, however, the recovery has come too late as they have been, or are scheduled to be, permanently removed. That would represent a gross loss of 9.5 billion feet of capacity broken out as 28% each to the U.S. West and eastern Canada, 22% for B.C. interior, and 17% for U.S. South. However, because some of these closures were to make way for newer, more modern mills, the net loss was less severe.
Over the course of the downturn a great many mills were put into “indefinite idle” status. Many of those have since been restarted but, as of the end of 2013, 28 of them remained in limbo. Their current aggregate capacity stands at 2.7 billion board feet. The latest such closure is located in Prince Albert, Saskatchewan, which was doubly handicapped by the continued shuttering of a nearby pulp mill and the loss of adequate logging capacity. Among the returnees are two mills in B.C. that were idled by explosions but are set to return in early to mid-2014 and a mill being rebuilt in Ashland, Maine.
In between the dismantled and idled plants is a class of mills that have been closed without any specific timetable for reopening. While the recovering market for lumber has led to some of these mills being saved, 19, with a total capacity of 1.4 billion feet, remain inactive. Most appear unlikely to be revived, though periodically investors appear who return them to active status. Recent examples included the former Abitibi mill in Albertville, Ala., a long-abandoned mill in Saratoga, Wyo., an insolvent mill in Montrose, Colo., and a shuttered mill in Coushatta, La.
Of the 207 mills, 49, with a total of 5.7 billion feet of capacity, have resumed production. Leading the recovery were mills in eastern Canada, which was among the hardest hit during the recession. All told, with net closing, reopening, and capacity expansion, North America’s lumber capacity is on track to hit 69 billion board feet in 2014, representing a 25% recovery of the shrinkage sustained during the recession.
FEA’s Sawmill Profiles itemizes the dynamics of these changes in a state by state, province by province enumeration of the principal softwood sawmill population.
For wood panels, we maintain lists of North American OSB, softwood plywood, particleboard, and MDF mills. In the case of OSB and plywood, we note if a given mill is currently in operation or idled. For OSB, of the operable 28 BSF (3/8-inch basis) estimated for 2014 (57 mills), effective (i.e., currently running) capacity will total 23.3 BSF (47 mills). This marks a 2.9 BSF increase in effective capacity over its 2012 trough and includes the start-up of Georgia-Pacific’s Clarendon, S.C. mill and Louisiana-Pacific’s Thomasville, Ala. facility, both in early 2013.
Of the 67 operable softwood plywood mills in 2014, totaling 14.9 BSF, 58 are currently in operation, with a combined capacity of just under 13 BSF. This is only slightly above 2012 as little idled capacity has restarted. We assume that the idled OSB and plywood mills will again be in operating by late 2017–early 2018 as our demand forecast warrants that volume of capacity and, in the case of OSB, we assume additional new capacity growth in the second half of the decade. If some of these idled mills are not restarted, then there is certainly scope for expansion at operating mills. One upside potential for plywood capacity is the anticipated growth in LVL capacity that would likely require plywood capacity as an outlet for excess veneer to be cost effective.
Given the extended period of time some of the idled mills have been down and the investment needed to bring them back online, it is quite possible some of those facilities will be permanently closed, leaving producers better able to invest in greenfield expansion, and in expansions at more competitive facilities.
Early 2014 has brought the closure or announced closure of three particleboard facilities, dropping total capacity from around 5.2 BSF (¾-inch basis) to 4.8 BSF, bringing balance to a market where total capacity has exceeded of demand in recent years, particularly in the U.S. West. We expect the current crop of 19 MDF mills, totaling 2.7 BSF, will continue to operate as markets improve, and anticipate net capacity growth in the second half of the decade, as demand reaches new record highs.