The survey of the European OSB industry in WBPI’s April/May 2010 issue made depressing reading and it is fair to say that nobody was surprised that the markets were dismal; the global recession ‘earthquake’ was in full swing, with the after-shocks still reverberating around every industry.

It seemed natural to expect that reports of 2009, and expectations for 2010, would be similarly lacking in cheer. How wrong.

Starting our survey in the west of Europe, it has to be said that there is little cheer expressed by the UK’s only producer of this panel, Norbord.

The mill ran at around 85% of capacity throughout 2009 and took an extended Christmas and New Year break in December/January. Several staff were made redundant as demand in the UK – its main market – remained depressed.

A spokesman expressed the view that 2010 would not show any marked improvement in the market, with housing and construction markets continuing to be quiet.

The company did, like most, succeed in achieving some much-needed price increases during 2009, totalling around 22.5%. However, the spokesman admitted that this still left prices well below 2007 levels – and any real profitability as a distant dream, while competition among western European producers remained fierce.

Norbord’s Belgian mill in Genk faired better than its UK sibling, with order books reported to be filled up to April, though the company suggested these ‘orders’ should perhaps be regarded more as “indications to buy”. The extended shut-down was not taken at Genk.

Of some comfort for the European mills is the fact that they are having a far happier time than their North American cousins, where 40% of Norbord’s capacity has been ‘mothballed’ awaiting better times. The group lost US$60m in 2009; not an unusual story for North American producers.

Genk’s better fortunes are mirrored by most central and western European producers, where the mood is much more buoyant.

Europe’s most western mill, that of Smartply in Waterford, Ireland (Eire), also reported a slow market. It produced at 70-80% of capacity in 2009 and took an extra week’s downtime over the Christmas and New Year period.

Wood supply was also a problem during the unusually harsh winter of 2009/10, with harvesting restricted by the severe weather and the lack of activity by sawmills adding to the reduction in harvesting.

Smartply managed to achieve price increases in 2009 of between 5 to 20% depending on the order and the specifications. Further price increases are planned for 2010, market permitting and, like all producers, the company has a long way to go before prices rise to anywhere near historic levels.

“The market is better than 12 months ago and we feel it bottomed out in the first half of last year,said a spokesman.

Kronolux in Luxembourg postponed the 10% capacity increase mentioned in our report last year but expects to implement it in 2010, if the market holds up.

The mill ran at around 190,000m3 annual production in 2009 (out of capacity of 200,000m3) and was running at full capacity in the first two months of 2010.

However, this producer did not achieve any price increases last year and was less upbeat than some of the other central European producers.

In France, 2009 saw one small OSB mill close permanently – that of Isorex in Chatellerault, which shut its doors in June.

However, the much-larger mill of KronoFrance in Sully-sur-Loire reported a full order book to May when interviewed in late February – and that it had produced to full capacity since September 2009.

“Before that, we had a lot of stock and not enough orders and we were looking for all the orders we could find and had to be flexible on price and markets served. In June it was a strange situation and we went to a position where our production was fully booked. The summer was also good for us, even in markets that would normally close for holidays our customers opened their doors to receive deliveries. Nobody knows the origin of the upturn but we are glad of it!”

KronoFrance has no problems with wood supply. Its logs come from the forest of Les Landes south of Bordeaux in the east of France and it is a primary user of those trees, said the spokesman.

“We had no choice but to increase prices in 2009 by five to 30%, depending on the starting point and on the customer. We plan to continue increasing prices to June/July and we are still not back to pre-2008 levels where we would like to be. Prices fall very quickly but it takes time to get them up again.”

Egger’s Wismar plant reported in late February that it had orders on the books up to June 2010, with the plant having run at full capacity throughout 2009. “We have not seen such lead times since 2004,said a spokesman. He offered several suggestions to account for this good fortune, including the fact that customers and stockists had run down their stocks in difficult markets and then needed to re-stock. But this would have been a short-lived upturn if it were not for the fact that those customers continued to see demand from their customers, mainly in the housing and construction sectors.

While new-build is still relatively depressed, it appears that renovation for energy-saving, such as in roofs, and the extension of existing properties, have buoyed up the market for OSB.

There is also some suggestion that lower availability of yellow pine plywood – and an increase in its price – may also have helped OSB.

The disappearance of North American OSB manufacturers from the European markets has also had a beneficial effect.

Egger also reported that it is still working to bring up its prices and put through at least three increases in 2009 of four to six percent each. Again it was emphasised that there is a long way to go to get back to the prices of 2007. Several more price rises were reported to be in the pipeline for 2010.

Wood raw material is still increasing sharply in price and decreasing in availability, with the downturn in sawmilling and the severe winter weather leading to reduced felling, particularly in Germany.

“We estimate that 2010 will remain strong,added the spokesman. “We can’t be sure of course but we believe this upturn is not a ‘bubble’.

“However, this does not tie in with reports from the construction market at all. Timber frame construction in Germany is becoming more and more popular, but that is not the whole answer – it is [a ripple from] one small stone in the lake.

“all-in-all it is a positive, and unexpected, situation compared with a year ago.”

All the German manufacturers appear to be experiencing similar high demand for their products.

However, the severe winter weather in December and January, particularly in northern and eastern Germany, caused some serious reductions in log supplies and there were even reports in January that some OSB producers were imposing quotas on their OSB deliveries, while concentrating on standard production specifications, according to the Euwid newsletter no 5, in February.

It also reported that two German mills were planning stoppages for maintenance/improvement in April/May. This, of course, would disrupt supply and one wonders if this is a factor in the increased demand experienced in early 2010 as stockists and end-users increased their stocks as a precaution against possible looming shortages.

Another consequence of the increased demand for OSB has been the dropping of OSB2 grade from many producers’ product lists as they concentrate their resources on the higher-value specifications.

In eastern Europe the story of high demand is the same and that means that western and eastern continental producers are not ‘invading’ each others’ markets.

One of the more recent arrivals in eastern Europe – and part of the Kronospan ‘trilogy’ of massive new OSB mills in the region – is the Bolderaja mill in Riga, Latvia.

The mill, which produced its first board in July 2007 and hit the market with its full 500,000m3 capacity in late 2008, produced to full capacity in 2009 and expects to continue that trend in 2010.

“We are supplying to China and all over Europe,said a spokesman. “But wood is not getting any cheaper and the resin price is increasing, but our biggest problem is the pulp and paper sector which is destroying the [wood raw material] market, especially in Scandinavia.Riga in fact gets most of its wood supply from Latvia.

The Riga mill is focusing on “optimising everything”, reducing downtime, optimising its technology and maximising capacity to get the most out of its line.

Over 90% of production is exported, bringing much-needed funds into a Latvia hit very hard by the financial crisis.

The company hopes to increase its market penetration in countries such as Kazakhstan and Uzbekistan and the spokesman pointed out that the railway network in Latvia and these countries is compatible in terms of gauge, giving Bolderaja an advantage over other European suppliers.

“We are also focusing on convincing customers to buy OSB rather than plywood, but some markets are easier to convince than others. The Russian plywood industry is huge and so it is very difficult to break in to that market.”

Kronospan’s almost-identical mill in Jihlava in the Czech Republic also produced to its full 500,000m3 capacity and sold all it produced in 2009/early 2010.

The third of the trilogy of mills, the euro200m investment in the only OSB mill in Romania, at Brasov, started production on December 3rd, 2009 with a designed capacity of 300-350,000m3 initially. It is intended to increase capacity to the originally-announced 500,000m3 by the end of 2010.

Kronospan says on its website that Brasov is an area with huge potential for economic development and, being located in central Romania, goods can be transported to all regions of the country.

Kronospan’s other eastern European giant mill, in Bourgas in Bulgaria, is smaller than the other three, at 170,000m3 per annum. We listed this as 200,000m3 in our 2009 report, but received this revised figure from Kronospan this year.

The company reported that “All our OSB factories have been utilised to full capacity during 2009/2010.”

News of new capacity is understandably scarce and what there is is rather vague. Kronotex says it intends to increase capacity by 10%, or about 20,000m3, if the markets allow, some time in 2010.

Kronospan Romania intends to grow to its full 500,000m3 capacity from its current 300-350,000m3 per annum, also at an unspecified time in “late-2010.”

The only new mill on the horizon was mentioned in last year’s report. It is the UPM Kymmene/Russian Sveza Group joint venture. The 50:50 joint venture agreement was signed in April 2008 and the plan was to establish a company called OOO Borea in Sheksna in the south of the Vologda region of northwest Russia. Originally the complex was to include a pulp mill, sawmill and OSB factory. Subsequently it  was decided that there was sufficient sawmill capacity in Russia already and that part of the plan only was dropped.

A UPM spokesman advised WBPI in late February that the feasibility study for the project was still ongoing and would be completed by the end of 2011. At that point, the investment decision would be made on whether to proceed with the project. The outline plans are for an OSB mill with annual capacity of around 450,000m3.

So, European OSB producers are, for the most part, very happy. Certainly those on the continent of Europe have been producing – and selling – to full capacity since at least the middle of 2009 and seem confident that that will continue through 2010.

All are mindful of the threat of continually rising costs for wood, resin, energy and transport and of the need to continue to increase selling prices.

But one senses an air of insecurity from many of the players in the OSB industry. Because they cannot adequately explain the reasons for the upturn in business seen in 2009, perhaps some people are nervous that it is not sustainable. And are mill closures for maintenance/upgrade going to artificially stimulate demand? Indeed, has that already happened?

Will those closures go ahead in such a strong market? It seems surprising, if the market is genuinely in recovery, for any mill to voluntarily close its doors for any length of time.

However, the biggest question of all is why are the markets so buoyant when European economies are still in, or just struggling out of, a record recession in which the construction sector was so hard-hit?

It seems nobody knows.

Meanwhile, China is to get its first OSB line later this year as Baoyuan (CORRECT TITLE?) enters the market with a Dieffenbacher CPS continuous press line with a capacity of ??????. The company already has a CPS producing MDF.

Charismatic chairman of the company, Mr Cai??? Is confident that the market for his production is there – he is probably right.

There are reliable reports from the two major continuous press makers that this could well be the first of several OSB lines in China as they are already in negotiations with other panel manufacturers in the country.

2225wds 12/3/10

Latin America

Just as South America’s wood panel business seemed to be recovering momentum after the global recession, it faced a new setback as Chile was rocked by a devastating earthquake.

A short time before WBPI went to press, the massive 8.8-magnitude quake struck the country, tearing up roads and bridges, toppling buildings and triggering huge ‘tsunami’ waves which threatened coastal plants, ports and local communities.

However, early indications pointed to a lucky escape for the country’s two OSB mills operated by US forest products giant Louisiana Pacific Corporation. The plants are situated at Lautaro and Panguipulli in the Valdivia region, to the south of the quake zone.

Buildings at the 150,000 m3/year Lautaro OSB plant, only restarted in January (2010) following the recession, suffered some structural damage in the tremors, reported LP South America general manager Frederick Price two days after the 27th February quake.

On 1st March, the plant was down as LP Chile awaited the result of a building safety inspection before resuming panel production there, Mr Price said. But the Panguipulli mill, 80 miles south, with a capacity of some 120,000m3/year, appeared unscathed and was still running, he said.

In Latin America, it is the Chilean market that has led the way as far as OSB development is concerned and that market was created by Louisiana Pacific. It helped persuade Chile’s construction sector of the benefits of the wood frame building system and within 12 months the use of OSB had caught on, according to Mr Price.

To date, LP Chile has trained more than 7,000 carpenters to work with OSB and today, 30% of new homes in Chile now use the wood frame system of construction. In just four years the social housing sector has embraced the concept with 90% of all such projects now using the system.

Now, LP means to spread the wood frame word and the OSB revolution across the sub-continent. It is already ‘educating’ the building sector in Brazil where the group plans to expand its OSB capacity to meet expected market growth.

Chile’s Lautaro line, based on a modified multi-daylight press from LP’s former Montrose, Colorado, mill in the US, was launched in January 2008 to meet growing OSB demand in Chile and abroad. But in December that year, having reached 70% of its capacity, it was closed down when the market collapsed.

In late 2009, with the Panguipulli mill running at full capacity and the economic recovery under way, LP took advantage of the summer months of November and December to top up its wood stocks. Then, in January, it relaunched the Lautaro line, producing mainly eucalypt based board which, depending on market demand, was due to run at least until April 2010.

Once the Lautaro mill is back on track and production is up, LP Chile intends to operate it with 50% of its output dedicated to exports, chiefly to Asia, but also to other Latin American states.

Despite the dark clouds shrouding the earthquake’s human tragedy and destruction, a silver lining has emerged for Chile’s construction sector. The country’s reconstruction task will be immense, with at least 10,000 homes demolished and upwards of half a million more said to be severely damaged. But OSB is set to be an eventual winner.

“We are preparing to sell as much OSB as we can produce and maybe we’ll bring more in from Brazil. We have decided to freeze our prices and try to sell our products even through dealers,’’ the LP South America general manager told WBPI in the wake of the disaster. Much of the rebuilding will use wood frame technology because of its stability, he believes.

LP’s South American expansion, including its formal takeover of the former 350,000 m3/year OSB line of Chilean panel group Masisa SA in Ponta Grossa, Brazil, has proved a valuable new resource for the US group. In 2009, its Latin American businesses turned a 2008 loss into a healthy profit, it reported this February.

Meanwhile, LP has turned to its next big challenge in the region – Brazil. Targeting South America’s biggest potential market, the firm believes OSB will be in common structural use in Brazil in a little more than three years. By then, Mr Price expects to be selling 70% of the Ponta Grossa plant’s output to a vibrant domestic market.

To achieve that, LP has set about converting the plant to manufacturing structural OSB, carrying out essential line maintenance and acquiring the necessary APA certification for its products. Although the Brazilian market slowed too in the global crisis, LP has benefited from higher demand for lower cost home construction.

LP Brasil (with ‘s’ correct) is continuing to manufacture some of Masisa’s original niche products, representing about half of its monthly OSB volume of around 10,000m3. This includes the ‘tapume’ site hoarding product, building site ‘eco-tabua’ walkway planks and some packaging products.

Longer term, the firm intends to replicate its Chilean business model in Brazil. This will mean the eventual construction of a second, separate plant with a batch-press line focused on specialities such as LP’s SmartSide siding product. The big Ponta Grossa line will continue to manufacture volume OSB panels.

Louisiana Pacific is firmly committed to Latin America. A regional OSB market of just 600m3/year today will one day grow to four million m3/year as the wood frame system takes off and countries like Brazil, Chile, Argentina and Peru tackle their huge housing deficits, believes Mr Price.

Elsewhere in the region, there has been little progress in other OSB projects during 2009. A year ago, hopes were high that, at long last, Venezuela would succeed in getting its first OSB line up and running.

However, the 200,000 m3/year OSB line sold and shipped to the Venezuelan state owned CVG Proforca/PDVSA joint venture by Dieffenbacher is understood to be lying unassembled and gathering rust. Last year, WBPI reported a site at Chaguaramas, Venezuela had been prepared ready for the panel plant and a sawmill to take shape in 2009.

However, local reports indicate that though generous funding was provided for this ambitious project, it may have fallen victim to a political dispute within Proforca, a shortage of suitable raw material and instability in the country. Dieffenbacher also understands the project has come to a halt.