So, it’s official. The increase in demand for OSB from producers outside North America, reported in our survey this time last year, was not a temporary ‘blip’ but a sign of good times to come.
Although the market in Europe was showing signs of cooling down somewhat in the last quarter of 2004, the year overall left the whole industry with a collective smile on its corporate face.
Prices–and margins–continued the upward trend begun in mid-2003, with increases being reported over the period of as much as 35%. Indeed one manufacturer reported 40%. However, a softening in prices by about 10-15% in the last quarter was reported by most mills.
After some years of reporting gross overcapacity in Europe, we could now be looking at a situation where further investment is not only tempting, but positively necessary. Provided, that is, demand continues strong – and most manufacturers interviewed for this report are quietly confident that, though there may be a slack period in the first quarter of this year, the fundamentals are good for continued growth.
We begin our tour of European mills working from the west, which means the first company on our itinerary is Smartply in Waterford, Eire (southern Ireland). This is of course the former Louisiana-Pacific mill.
Capacity of this Washington Iron Works multi-opening press line remains at 325,000m3 for 2004 and the company produced and sold to that capacity.
“We are looking actively at expansion with consultants carrying out a study at the moment,said managing director Lou Hess. “It will probably come in 2007, but that is just a guess at this stage.We have space for a new line in the existing building – just – but we also have room for a new building on our 60-odd acres.”
Mr Hess reported a very good market in the British Isles and in Ireland, with the timber frame housing industry growing in both.
“OSB3 is very well accepted and continues to be the growth engine for OSB,he said, pointing out that in the early days OSB2 was the mainstay, for packaging, pallets and hoarding. Today, the majority of Smartply’s production is OSB3.
“We exported some production to the US but very much less than in the past, with good healthy growth in Europe.
“I think there will be some unique challenges in 2005, for example the added capacity in central/eastern Europe and Brazil may also have an effect on the market, but as the industry grows, the effect of each new addition is reduced because it is a smaller percentage of the existing capacity.”
Moving east to the UK, we find the Norbord mill at Inverness in Scotland, with an annual capacity of 330,000m3.
Until mid-2004, this company was known as Nexfor and until September, Inverness was Norbord’s only European mill.
Then the company acquired the Genk mill of Belgian family business Agglo for €50m to create Norbord Genk. That facility included an eight-daylight particleboard press line and a Dieffenbacher CPS continuous OSB line.
Norbord has put a slightly higher capacity figure than did Agglo on that OSB line, at 285,000m3 (the figure WBPI was given last year was 250,000m3). Thus total Norbord Europe capacity is around 600,000m3 a year, making it the second largest producer of OSB in Europe – and the third worldwide.
“Business picked up in Europe in July/August 2003 and prices kept on increasing monthly until May 2004 and we have not discounted since, although the market has not been as buoyant in the last couple of months,said a spokesman in December, adding that he believed it would be more competitive in the first quarter of this year.
“A shortage of plywood had helped OSB but ellioti pine plywood is now returning to the market, presumably because not so much is going to the US. The housing market in the UK is still strong – the fundamental demand is still there,he said.
He also mentioned that where OSB has replaced particleboard in the soft furnishing framing market, it is holding on to that business, in spite of its higher price, because the users have found that it is a better product and forms a small part of their total production cost anyway.
Incidentally, the UK will have to adopt CE marking of its panels from April this year, 12 months after the rest of the EU.
Next stop Luxembourg, which boasts one small OSB mill, owned by the Kronospan group. It was on target to achieve an output of around 200,000m3 for 2004 and plant controller Roland Weber said that this will be maintained for calendar year 2005 due to some investment in wood preparation (the 2003 figure was150,000m3).
“The market was very good in 2004 but now nobody is sure where it is going, but we are selling all we can produce,said Mr Weber in December. “It is a privilege to be profitable this year,he added, echoing the thoughts of many mills about 2004.
Somewhat unusually, Kronospan Luxembourg’s mill produces close to 50% of its panels in OSB4 grade. It also installed, in 2003, a press to produce phenol film-faced panels for use in concrete shuttering and this market is reported to be growing slowly.
Moving on to France, we find two OSB mills: Isoroy at Chatellerault and Kronofrance at Sully-sur-Loire.
For Isoroy, the actual output in 2004 was set to reach 110,000m3, slightly short of last year’s apparently over-stated capacity of 120,000m3. The mill produces around 1,000m3 a year of its fire retardant Pyroply product as well as producing a moisture resistant panel.
Kronofrance had already produced its nameplate annual capacity of 350,000m3 by September 2004 and expected to hit between 350,000 and 400,000m3 for the full year, with 400,000m3 for 2005.We have thus shown 2004 capacity as 350,000m3 in the accompanying table, with the extra 50,000m3 in 2005. The increase was due to increased feeding capacity to the ContiRoll press.
“We achieved an increase in prices in early 2004 because demand was good and we finally gained the true level of value of OSB,said marketing manager Klaus Gerker. “We ended up with four to five months’ delivery from March to the summer but the order book was inflated; people didn’t need it all but they bought because the price was rising steeply and the longer the delivery time, the more they ordered.
“Also a lot of Brazilian plywood went to the US instead of Europe, for packaging and furniture and that helped OSB in Europe,he said.
As reported by all mills, Mr Gerker confirmed that distributors’ warehouses were full by July/August and then came the summer holidays. After the holidays, stocks were high so buying slowed sharply.
“Thus demand for us fell in the fourth quarter, but demand in the market is still at a good level and we believe it will be in 2005 too,said Mr Gerker.
Germany still has three OSB mills: Egger, Glunz and Kronotex.
Kronotex at Wittstock/Heiligengrabbe claims a nameplate capacity of 395,000m3 (2003, 385,000m3) and achieved production of 360,000m3 in 2004 – the figure predicted in last year’s report by spokesman Mr Mathes.
“We could probably produce 420-430,000m3 on this line,he said last December. “From mid-2003 through 2004 the market has been very good. Before that it was terrible. It is going down a bit now, because it is winter and housebuilding is slow, but we have other markets in the Far East and North America, so it is not a big problem.
“The price increased by about 40% since 2003 and it is now down about 10 to 15% but I believe it will increase again in 2005 – it is normal to have a price reduction at this time of year.”
An error in our previous reports came to light here as the length of the ContiRoll press at Kronotex should be stated as 43.7m, not 48.5m. It appears some confusion arose in the past concerning total press length and effective press length, for which we apologise.
The same is true for another German mill, Glunz in Nettgau, where the effective press length is again 43.7m and not 50m as stated in our previous reports.
Capacity at that Glunz mill was increased in 2004 from 360,000m3 to 400,000m3, by “various technical developments producing a higher speed on the line”, and various options are being considered for more major increases in the near future.
Steam pre-heating or a press extension by 10m to 53.7m are possible moves under  consideration but the advantages have to be weighed against the disadvantage of a long stoppage in production to effect such an upgrade.
However, a spokesman at Glunz said that he expected to add a further 12% to the total production volume in 2005.
There is also talk of a possible second line at Nettgau instead of an upgrade and this is subject to a decision by parent Sonae and rumoured to be a possibility in 2006.
The mill has exported a lot of production outside Europe and the spokesman said he did not see a great increase in demand in Europe in coming years and that exports would be a necessity, with North America and Asia seen as target markets.
The third German mill is owned by Egger and located at Wismar in the north of the country. The net pressing length of this ContiRoll press is 38m, as previously recorded.
The mill produced to its full capacity in 2004, although the effects of product mix of course means that the 360,000m3 stated in our table is for guidance, as in all cases.
“At the end of 2004, the hype in the market decreased to a more normal level and this was a good development because hype is not good for the producers,said spokesman Mr Sprockhoff. “Customers can get angry because of the extended delivery time and the pricing and think you are just trying to get the maximum out of them.We were on over six months’ delivery in the middle of the year and some orders were still outstanding in early December, but those will be finished by Christmas and we will then return to our normal three or four weeks’ delivery,said Mr Sprockhoff when interviewed in early December.
He also pointed out something which is all too easily overlooked in a market of rising prices, when it is often assumed the increase is all profit for the manufacturer.
“We have had huge cost increases as well – our wood costs increased by more than 40% because of a new pulp mill which started in 2004 about 200km away. It affected all the panel industry in Germany. The resource is certainly there but I think prices will stay at a high level.”
Egger says it will always continue to optimize its production at this relatively new mill, but has no immediate plans for expansion at present.
Moving east again to Poland, there is the Kronopol mill in Zary. It ran to its full capacity of 350,000m3 again in 2004, according to managing director Johann Bitzi.
“We are planning value added products at Zary for OSB and we have many ideas,said Mr Bitzi, whilst declining to elaborate on that theme.
Turning to raw OSB markets in Europe generally, he said: “North America provided a certain quantity of sales but is not a longterm solution because of the transport distance.
There is a major market all over Europe and eastern Europe is growing rapidly in all panel products and will continue to increase.”
Last but not least among European mills is another one of the Kronospan empire, this time in Bulgaria.
As far as we are aware, there has been no change to capacity here and so it is listed at the figure given by the company last year – 120,000m3 a year in OSB2 and OSB3 grades.
Saving the biggest ‘news’ until last, there are of course two large new mills planned for the east of the continent of Europe.
The same branch of Kronospan that owns Kronopol is building a new OSB mill on a 45ha site in Slubice, also in Poland, with a planned capacity of 450,000m3 a year. It will employ a Siempelkamp ContiRoll press of 43.7m x 9ft and has a designed running speed of 1,000mm per second. That line is due on stream at the end of this year.
A second new line is also planned by the Kronospan Group, this time at Jihlava in the Czech Republic. Expected to come on stream in September/October this year, the mill will have a capacity of 850m3 per day, with the facility for the press to be extended in the future to reach a capacity of 1,850m3 a day.
Chipping, drying and screening would also be expanded by adding a second line of this equipment if and when the press is extended.
The press supplier this time is Dieffenbacher, which is supplying a CPS continuous press of 38.5m, initially, and 2.8m width.
These two mills alone will add over 730,000m3 to continental European OSB capacity, by the end of this year.
In December, we learned that Russia’s National Timber Industry Company (NTIC) intends to build a €100m plant in the Vologda region. Anticipated capacity is 300,000m3 a year. It is intended to attract funding from the European Bank for Reconstruction and Development and four other potential investors.
The high level of demand for raw OSB board has rather put thoughts of valueadding to the back of some producers’ minds, but there are melamine faced, phenol faced and specially sanded panels on offer, as well as fire retardant and moisture resistant boards; and not forgetting the more common forms of value-adding such as tongued and grooved board and cut-to-size panels.
EPF figures
The European Panel Federation (EPF) confirms the strong growth in the OSB market over the past 18 to 24 months in its statistics and its Newsletter.
The Federation, which represents a large proportion of the panel manufacturers in Europe, reports an average 20% growth for production and consumption in the first nine months of 2004.
“The massive 25% upswing in the first quarter of 2004 was followed by 17% growth in the second and 19% in the third quarter. During the first nine months of the year, OSB production increased by 20%, compared to just a 10% increase over the same period in 2003. This growth was mainly driven by firm exports, rising by 17%, while home sales  rose by 7%,said the Federation in December. “OSB is firmly expected to reach a year end production volume of 2.7 million m3, against a demand level of 2.4 million m3.”
The newsletter went on to address issues of future development in the industry:
“With demand accelerating rapidly, the industry would come close to its limits [in 2005] if the capacity were to remain at three million m3. The two investments that have been announced for 2005 (Jihlava and Slubice] should therefore, in contrast to the serious disruption that was caused by the four new plants in 2001, be able to meet real market needs.”
Latin America
Latin America’s few OSB producers enjoyed the rich fruits of the North American boom for this panel, but also saw growth within the region itself during 2004.
Soaring prices and strong demand in the US for the high quality pine panels produced by Masisa do Brasil Ltda at Ponta Grossa, Brazil have kept the firm’s 350,000m3/year Dieffenbacher CPS line running flat out for much of 2004.
Earlier in the year, US exports represented an estimated 75% of the company’s total OSB business. In a slow, but gradually expanding regional market, demand for a stable, quality substitute for plywood in Brazilian niches, such as structural furniture components and heavy duty packaging, accounted for almost all the rest.
The company has been trialling a special 18mm moisture resistant OSB with several customers. It adds melamine to the regular phenolic resin to improve the panel’s water resistance for use as concrete form in the construction sector, according to Masisa.
Masisa do Brasil, an offshoot of Latin America’s premier panel maker, Masisa SA of Santiago, Chile, has seen its export market transformed since 2002 when OSB prices hit rock bottom. Since April 2003, business in the US has accelerated and higher prices have helped lift the panel’s fortunes.
Masisa believes the good reception given to its products in the US has been enhanced by its continuous line technology and clear pine wood quality from thinnings. But the firm had to overcome teething problems in its continuous production technology, including suffering a run of ‘blown boards’ resulting from uneven steam release in the degasification process.
Masisa recognises OSB markets in Latin America will only develop slowly. But it realises too it must maintain sufficient capacity and a market presence from now on, to take advantage of coming growth. The firm is also clear that would-be OSB competitors are watching its performance closely before committing themselves to such a new product in the region.
Elsewhere in Latin America, US giant Louisiana-Pacific Corporation (L-P), a pioneer in the region, is developing a viable OSB business across South America.
L-P Chile’s modest 133,000m3/ year line at Panguipulli, Chile, launched in 2001, has  created a solid national market for the panel while exporting substantial amounts, especially to the US.
L-P Corp of Nashville, Tennessee revealed last year it was so pleased with the success of  its Chilean venture, it was considering doubling OSB capacity there after less than three years in South America. One option was to ship a used 130,000m3/year OSB line to Chile from the L-P site in Montrose, Colorado, closed down three years ago.
In early 2004, L-P Chile’s existing modified Schenck/Motala KMW eight-daylight press line was exporting increasing amounts of siding and ‘Smart Trim’ products to the US construction sector. Foreign sales accounted for more than 60% of line output at that time.
But finally, the US wood products group decided to source the siding and trim products, heavily in demand in the US, internally.
L-P announced a plan to switch production to specialities at its panel mill in Hayward, Wisconsin by July 2005, rather than expand the Panguipulli site immediately.
Even so, today the Chilean OSB line is fully sold with around 90% of its output consumed in the small but established national market. Other board is being exported to Central and South American countries, as well as to the Far East.
L-P is firmly committed to its South American operation, seeing it as a valuable base in the OSB market of the future. “We’re still looking at the expansion option in Latin America. Although it was felt this was not the correct strategy just now, we are still ready to go there,said L-P’s investor relations director, Mike Kinney.
L-P Chile also forms a useful bridgehead for the group to supply another potentially huge OSB market – Asia. Freight rates for shipping from Chile across the Pacific to the Far East, particularly China, are attractive, said Mr Kinney.With signs of change towards wood based building techniques already apparent in China, LP will be well placed to tap a growing market beyond the next decade, he suggested.
Long standing plans for another 350,000m3/year South American OSB plant, this time a US-backed project for Venezuela, has been confirmed as “on hold”.
Privately-owned forestry and real estate group Trillium Corp of Bellingham, Washington State confirmed in 2004 the construction of its OSB line in Macapaima is still not ready to go ahead. The plant site, along with some equipment, appeared abandoned and semi-derelict when WBPI visited Macapaima in March last year. It was back in 2001 that group subsidiary Forestal Trillium de Venezuela took delivery of the 12-daylight Dieffenbacher press line equipment. In 2002, Trillium blamed lack of funds and political uncertainty in Venezuela for not completing the project.
There is continuing talk of OSB production somewhere in Asia becoming a reality but no firm signs as far as we are aware at WBPI.
Some in the industry feel that China is the most likely first producer, in that areas of the country with a temperate climate could use it for construction where the more humid part of Asia could experience limitations to the use of OSB. However, it is hard to see where suitable raw material would come from within China.
Thai Plywood did tell WBPI on a recent visit to its MDF mill near Bangkok that it was considering OSB as a possibility for the future because it is finding it increasingly difficult to source suitable logs for its plywood production. Other mills in South East Asia are also considering the possibility and OSB is being imported to the region – and to China – which may well prime the market for local production.
We feel that OSB manufacture is likely to come in Asia but would not like to guess at the timing.