Since the beginning of 2008, OSB mills old and new have been shuttered across the US and Canada. Many of those that remain are operating on reduced shifts: OSB production as a percentage of capacity for the North American industry during most of 2008 averaged 70%, say industry sources.
Plans for new mills that were shaped during the halcyon days of US$500 per million ft2 prices in the middle of this decade are gathering dust; two almost-completed facilities are on hold; and major names in OSB have been transformed, most painfully Ainsworth Lumber Co, forced to restructure to the exclusion of the founding family after over-committing itself during better times.
Even the experienced management team at Louisiana-Pacific Corp (LP) has had to tighten the company’s belt dramatically. In November, LP announced it was eliminating 200 salaried positions, freezing wages, slashing capital spending and trimming non-essential activities.
Norbord Inc ceo Barrie Shineton said in January that 2008 was the worst year the OSB industry has ever experienced.
If there is a light at the end of the tunnel, it would be easy to mistake it for a train bearing down on the tattered hopes of the beleaguered OSB industry!
In this survey last year, total North American OSB production was reported as 29,634 million ft2/yr (29,634m ft2/yr), of which US mills accounted for 18,060m ft2 and Canadian mills 11,574m ft2.
The price of the benchmark grade of OSB, 7⁄16in North Central, fell to a five-year low in February 2008, of US$130 per thousand ft2 (Random Lengths prices). The highest price during all of 2008 was US$222 per thousand ft2 in August – usually the height of the US building season. In April 2004, the price of the same grade had reached US$520.
Within the past year, the following OSB mills closed permanently: Ainsworth’s three former Potlatch mills in Minnesota: Bemidji (350m ft2/yr), Cook (440m ft2/yr), and Grand Rapids (395m ft2/yr); Weyerhaeuser’s Drayton Valley, Alberta, mill (415m ft2/yr), and (officially) Miramichi, New Brunswick (430m ft2/yr), already identified in this report a year ago as permanently closed.
In addition, more than eight billion ft2 of North American production has been indefinitely curtailed within the last two to three years.
Canadian mills currently indefinitely curtailed are: Footner Forest Products (the 700m ft2/yr Ainsworth, Grant Forest Products Inc joint venture at High Level, Alberta), shut since Nov 27, 2007; Canfor Corp’s PolarBoard mill in Fort Nelson, BC (640m ft2), closed since the summer of 2008; Grant Forest Products Inc’s Timmins, Ontario, mill (520m ft2), shut since September 2006; Longlac Wood Industries (170m ft2), shut since October 2006; Louisiana-Pacific Corp’s Chambord, Quebec, mill (470m ft2), closed since 4Q 2008; Tolko Industries Ltd’s Slave Lake, Alberta, operations, including the original OSB mill (250m ft2, indefinitely curtailed since May 2007), and the new Athabasca Division engineered wood facility (800m ft2 including OSB and OSL), closure announced in February 2009; Tolko’s High Prairie, Alberta, mill (642m ft2), closed February 11, 2008; Weyerhaeuser’s Hudson Bay, Saskatchewan, mill (550m ft2), announced April 2008 (company said it would consider mill’s sale); Weyerhaeuser’s Wawa, Ontario, mill (470m ft2), announced October 2007.
There was some confusion in January 2008 as to whether a reported curtailment at Grant’s Englehart, Ontario, mill (760m ft2/yr), was indefinite, but the company subsequently told local media the mill would only be shut for two weeks.
In the US, the following mills are indefinitely shut: Georgia-Pacific LLC’s Dudley, North Carolina mill (170m ft2/yr), shut since December 2006; GP’s Mount Hope, West Virginia, mill (375m ft2) has shut and all 70 production staff were laid off in early 2009; Louisiana-Pacific’s Athens, Georgia, mill (375m ft2), closed since Q4 2008; LP’s new Thomasville, Alabama, mill (750m ft2), closed following an explosion in May 2008 while in start-up mode; Norbord Inc’s Jefferson, Texas, mill (415m ft2), since January 2009; LP’s Silsbee, Texas, mill (350m ft2) shut since Q3, 2007; and Norbord’s Huguley, Alabama, mill (500m ft2) since March 21, 2009.
All told, that’s a capacity reduction through indefinite curtailments alone of 8.1 billion ft2/yr, and that doesn’t count the mills operating on reduced shifts.
LP’s management believes that, of about 30 billion ft2 of OSB capacity that is either completed or to be completed, “There appears to be about 10 to 11 billion ft2 that’s either been shut down permanently or shut down indefinitely,CFO Curt Stevens said during a conference call with analysts in early March 2009. “I think the number of permanent shutdowns are a little bit below five billion and the amount that’s been indefinitely shutdown is little bit above five billion. So, the industry capacity that’s available to run right now appears to be somewhere between 18 and 19 [billion ft2].

‘Particularly brutal’ year-end
APA, in its latest quarterly statistics report released on January 29, 2009, described the 27% decline in North American structural panels and engineered wood production in the fourth quarter of 2008 as “particularly brutal”.
North American structural panels and engineered wood production in 2008 totaled 30.680 billion ft2 (30.680bn ft2), a 20% decline compared to 2007 (38.511bn ft2).
Fourth quarter production, at 6.214bn ft2, showed a decline of 22% compared to the third quarter (8.050bn ft2);       © p20  ß p18  and a decline of 27% against the 8.555bn ft2 produced in the fourth quarter of 2007. Production for each of the first three quarters of 2008 had been more than eight billion ft2, the APA noted.
Structural panel consumption in the US was 5.438bn ft2 in Q4, a 22% decline compared to Q3 and 25% down on the final quarter of 2007 (7.289bn ft2). For the whole of 2008, consumption dropped 22% from 34.055 to 26.640bn ft2.
Canadian structural panel consumption dropped 17% between Q3 and Q4 from 940 to 778m ft2, and was 31% lower than Q4, 2007. For 2008 as a whole, Canadian consumption fell 13% to 3.606bn ft2 compared with 2007.
With new residential construction accounting for an estimated 57% of OSB consumption in North America last year, the impact of the US housing slump was evident. In 2008 as a whole, OSB production was 23% lower than in 2007, at 18.505bn ft2. Canadian production declined 40% while US production dropped 12%.
OSB production in Q4 2008 declined 24% from 4.915bn ft2 in Q3 to 3.732bn ft2, and 29% compared to the final quarter of 2007 (5.285bn ft2).
Offshore imports of OSB totalled 66 million ft2, a 47% decline. Increased trade with Europe, Mexico and South America raised US exports from 314m ft2 in 2007 to 497m ft2, but Canadian OSB exports dropped 44% on poor US demand, from 7.385 to 4.129bn ft2.
The outlook for North American OSB producers in 2009 is no better.
In Norbord’s first financial conference call of this year in January, ceo Barrie Shineton said: “The challenges facing our European operations now mirror those in North America and it’s clear that any housing recovery in North America and the UK will not happen in 2009.
“We agree with most expert opinion that the decline in US housing was an early indicator of the current recession. We also agree housing recovery will be the catalyst for a broader                    © p22 ß p20  economic recovery. However, government stimulus packages will first have to filter through to the housing sector and house prices need to stabilise before buyers will re-enter the market,he observed.
“Experts are forecasting annualised US housing starts to drop below 0.8 million in 2009, with the first half of the year being at an even slower pace. Some of the same experts are suggesting that the market will bottom out later this year, but we don’t expect to see any of the benefits of a housing recovery until late 2010 or perhaps early 2011.”
In a January 30, 2009, research note on Norbord’s fourth-quarter and full-year 2008 financial performance, industry analyst Paul Quinn with RBC Capital Markets (RBCCM) noted that Norbord’s North American mills in Q4 operated at 60% of capacity, down from 90% in Q3, and that through full-year 2008, these mills operated at 80% of capacity. Mr Quinn noted that was better than the industry averages of 55% for the fourth quarter and 70% for the year as a whole.
Norbord is among the few large North American OSB producers not to have permanently closed any mills during the slump, and it started later than most in taking market-related curtailments.
Permanent or indefinite curtailments were announced in eight of the 12 months of 2008, and each of the first two months of 2009.
When, on August 26 2008, Ainsworth announced the permanent closure of the Grand Rapids, Minnesota, mill that had been indefinitely curtailed since September 2006, the company’s then-ceo Robert Allen cited “the structural challenges of operating in this region, and the condition of the mill at the time it was delivered to us by Potlatch”.
Similarly, LP’s OSB executive vice president Jeff Wagner said on September 4, announcing the indefinite closure of Chambord, Quebec and Athens, Georgia: “We are faced with one of the weakest housing markets in decades, which has substantially reduced the demand for OSB. In these conditions, we simply cannot justify running these mills.”
On February 13, 2009, Tolko indefinitely curtailed its brand-new 800m ft2/yr engineered wood facility, the Athabasca Division, Slave Lake, Alberta.
“The ramp up of any large-scale facility is difficult at any time,said Brad Thorlakson, president, Tolko Marketing and Sales Ltd. “Athabasca Division had the additional challenge of coming online during a market down-cycle unprecedented in severity and duration.”
Since the start of 2009, Norbord has informed employees that production at its Barton OSB mill in Lanett, Alabama (Huguley), will be suspended from March 21; GP temporarily laid off all 70 production staff from its Mount Hope, West Virginia, OSB plant; and Ainsworth announced the permanent closure of its Cook and Bemidji mills in Minnesota.
Survival strategies of some of the mills that continue to operate range from reduced shifts to intermittent short-term closures. Arbec Forest Products Inc’s 283m ft2 facility in St Georges de Champlain, Quebec, is surviving the downturn by producing at 100% of capacity, then taking fixed period, short-term breaks of several weeks at a time.

Start-ups all on hold
What of all those new mills announced with much fanfare earlier this decade?
The one and only new OSB mill to have actually come on stream in 2008 (March), LP’s 750m ft2 Thomasville, Clarke County, mill in Alabama, was in start-up mode when an explosion in May 2008 seriously injured four employees.
In October, LP announced a further six-month curtailment and has spent time since then negotiating to amend an agreement with Clarke County and Alabama officials that stipulated it had to employ at least 130 people in exchange for a US$17m incentive package when it agreed to build the US$250m Thomasville mill.
Even before the 2007 WBPI survey, Ainsworth had confirmed its second line at Grande Prairie was on hold, even at the advanced stage of construction, as costs soared while the market nosedived.
Kruger Inc’s plans for a new Ontario mill it had already put on the back burner this time last year are now cancelled.
By April 2008, environmentalists and other opponents of a proposed OSB mill in Lisbon, New York – a project acquired by Ainsworth from Chatham Forest Products – were celebrating after the Vancouver-based company failed to retain its option on the mill site.
Grant Forest Products has never confirmed media reports, also in April, that it had halted construction of its US$250m OSB mill in Clarendon County, South Carolina. But it hasn’t denied them either. The Times Democrat, Orangeburg, South Carolina, reported on April 7, 2008, that construction on the Grant mill had stopped and unconfirmed reports suggested the ‘twin’ Allendale, South Carolina, mill had experienced a number of problems. The Allendale mill pressed its first board in late 2006.
It is understood that some of the equipment intended for Clarendon was diverted to Allendale, though no-one at Grant’s head office, or at the Allendale facility, responded to enquiries. A Grant employee did, however, confirm last April that the Clarendon plant’s site manager, Toby Elgin, had moved to Allendale, and Clarendon was not operating.
Grant’s Clarendon and Allendale mills each have a capacity of 800m ft2/yr.
Huber Engineered Wood’s planned OSB mill in Emanuel County, Georgia, is apparently still on the cards, though off-schedule.
Huber executives met with Emanuel County officials on June 30, 2008, to discuss plans for the delayed US$300m mill the company first announced plans to build in March 2005. When Huber confirmed its selection of Emanuel County for its new facility in May, 2006, it was slated for start-up in 2008 and would have an annual capacity of over 650m ft2/yr.
Huber has consistently declined to comment on the progress of the mill.     © p24 ß p22  However, the July 2008 edition of the Swainsboro/Emanuel County Chamber of Commerce newsletter said Huber officials had met with representatives of the Chamber and the Swainsboro/Emanuel County Joint Development Authorities. Andy Riley, president of the Joint Development Authorities, said:
“Huber Engineered Woods Inc continues to be committed with plans to construct an OSB plant here in Emanuel County. With conditions in the housing market in a state of decline, the project continues to be delayed, which is understandable. We have renewed our ‘Memorandum of Understanding’ for another 12 months.”
Mr Riley’s office confirmed this February that nothing had changed since that announcement.
Last October, Ainsworth terminated a May 2006 commitment with the Government of Manitoba on a planned engineered wood facility northeast of Winnipeg. And in February this year, Ainsworth’s manager of corporate development, Bruce Rose, said the company would also not develop the planned new mill in the Quesnel area of BC “based on projected market demand and our focus on liquidity preservation”.
Finally, the management of Arizona Forest Restoration Products (AZFRP) is getting increasingly bullish about its prospects of building an OSB mill near Flagstaff, Arizona.
Close to the usually-wood-hungry California construction market, the site of this proposed mill – it would be the first on the US west coast – is ideal and the project seems to have supporters.
AZFRP has still so far not succeeded in getting harvesting licenses for the national forest timber it would depend on, but there appears to have been some progress. In early March 2009, AZFRP president Pascale Berlioux said there was likely to be “a very significant public announcementwithin the next week or so. He indicated that the USDA Forest Service in Arizona is coming under a lot of pressure to take action that will move forward the Governor’s state-wide strategy for forest restoration. The utilisation of small-diameter trees has a direct bearing on forest health in Arizona, where the risk of catastrophic forest fires is high; and a plan for an industry solution to the state’s forest restoration needs is both well-supported and in line with the wood fibre needs of AZFRP.
Mr Berlioux said he was hopeful the Forest Service would, by this summer, put out an RFP (Request for Proposal) for 300,000 acres for treatment over 10 years, which he said “happens to be exactly what we have been asking for”.
If these hopes are realised, Mr Berlioux said he was looking at plant start-up in 2012.

Prognosis for 2009 and beyond
Asked in January for his most recent market forecast, Craig Adair, market research director for APA-The Engineered Wood Association, said November’s forecast was “no longer worth discussing”.
In January, the Western Wood Products Association, Portland Oregon, which represents lumber producers, scaled back its earlier forecast for lumber supply and demand for 2009. It does not expect to see the beginning of a recovery before 2010, and noted that US housing starts for 2009 were forecast to reach just 803,000 units, a post World War II low.
RBCCM’s Paul Quinn, in a January 12, 2009, Growth and Yield report, predicted that US housing starts would close 2008 at just over 930,000 units – less than half their 2005 peak of 2.073 million units. Single family starts were expected to come in at about 630,000 units, 40% below 2007 and 63% below peak 2005 levels.
“We have revised our 2009 forecast down, from 0.99 million units to 0.90 million, and are releasing our 2010 forecast of 1.05 million units,said Mr Quinn.
Demand for building materials is expected to continue to contract in 2009, he said. And while there is no “quick fixto falling US home prices, limited credit availability for home buyers and high home inventory levels which have all contributed to a downward spiral in US housing activity, he anticipates the new US administration will bring forward purchasing incentives that will mark 2009 as the bottom of the housing cycle.
Mr Quinn noted that benchmark North Central OSB prices in the fourth quarter of 2008 were down 15% quarter-over-quarter to US$170 per thousand ft2, but up 4% year-on-year.
“Capacity curtailments have limited output and moderated price declines, but the lack of demand in the housing market will lower the likelihood of sustained pricing momentum in 2009,he said, forecasting prices of US$175/thousand ft2 in 2009 and US$205 in 2010.
During the March LP conference call, Rick Frost said he had adjusted down his expectations for total US housing starts for 2009 to 600,000. “That’s approximately one-third of the underlying demand.This is the lowest demand anyone has seen. LP expected to take more than 700 mill days of downtime in OSB in the first quarter of 2009, including the indefinite status of Silsbee, Athens, Clarke County and Chambord.
The challenge for OSB producers will be to figure out how to be profitable at the new, lower levels of housing construction, said Mr Frost, who noted that a return to 1.1 or 1.2 million starts in 2011, “feels to us like the good old days at a         © p26 ß p24   much lower level of activity.”
In an article in California-based Building-Products in February, Greg Lewis, director of wood products for RISI, reflected that the curtailed capacity, combined with pent-up demand, could bode well for a swift rebound for structural panel producers when markets turn around, most likely in 2010.
“It will take time to ramp up production at idled facilities, the overall capacity base will be smaller due to closures over the previous two years, and buyers will be anxious to rebuild inventory in anticipation of stronger demand,said Mr Lewis. “The net result will be a swift jump in prices and a return to positive profitability for OSB and plywood.”
He said RISI expects US housing starts to bottom in the first quarter of 2009, at around 710,000-715,000 units, then to move slowly back above one million units by the end of the year and to more than 1.4 million units for 2010.
“Finally, we expect the government and large lending institutions will take aggressive steps to reduce the rate of foreclosures. We believe this process will move quickly over the next several months as it is in both the government’s and lenders’ interests to limit the downward effect of foreclosed properties on home prices,he said, adding that, led by OSB, which is closely linked to the US residential construction market, North American structural panel demand will jump 25% to 40 billion ft2 in 2010.
The vast amount of permanent and indefinite curtailments will help bolster OSB prices, and Mr Lewis said profitability for OSB producers was forecast to be at 20-30% in 2010.
He concluded: “That, combined with plywood margins of 10-20%, will mark the most profitable year for the [structural panels] industry since 2005.
Here’s hoping.  n