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Nov 2004 - The Logging and Sawmilling Journal

ENGINEERED WOOD

Sizzling returns on OSB

Sizzling financial returns are driving interest in OSB operations, with Ainsworth making some major deals to acquire operations from Boise and Potlach, nudging the BC company up the list of top North American OSB producers.

By Russell Taylor

 Ainsworth has become an even larger OSB player with its purchase of an OSB mill from Boise and three OSB plants from Potlach, both deals completed this year.

Over the past eighteen months, Oriented Strand Board (OSB) has become the darling of the wood products industry, as prices cracked the US $200 per thousand square feet mark on 7/16” back in April 2003—and have stayed above this level ever since. Prices peaked at US $520 per thousand square feet, a staggering $400 over the break-even costs of many mills. The North American OSB industry is very healthy and this allowed for some further acquisitions earlier this year: Tolko’s purchase of Weyerhaeuser’s Slave Lake, Alberta mill and Ainsworth’s purchase of Boise’s Ontario mill.

The truly blockbuster deal in this sector came with Ainsworth’s announcement in late August that it would be purchasing three of Potlach’s OSB plants for US $457 million. With the Ainsworth/Potlach deal, five of the top 10 OSB producers world-wide are now Canadian-based. They are: Nexfor, Grant Forest Products, Ainsworth Lumber, Tolko Forest Products and Canfor. Looking at the big picture, North American capacity in 2003 totaled 23.7 billion square feet, representing an 86 per cent global market share. Globally, the top five companies were from North America and included Louisiana-Pacific (20.6 per cent global capacity), Weyerhaeuser (15.1 per cent), Nexfor (14.3 per cent), Georgia-Pacific (8.2 per cent) and Grant (6.0 per cent). The picture changes a bit if Ainsworth’s purchase of Boise and the Potlach mills is included in its volumes (and including its share of the Footner, Alberta mill).

Ainsworth’s volume increases to 2.23 billion square feet, representing an 8.1 per cent market share, putting it just behind Georgia-Pacific, and ahead of Grant Forest Products. The largest European company, the Krono Swiss Group, is well down the list, representing 5.8 per cent of global capacity. Since the first North American OSB mills were built in the late 1970s, the average size of the OSB plants has increased from 100 million square feet to 800 million square feet today. Consequently, companies with older plants do not have the economies of scale and technological features that the newer generation of plants can provide. While competitiveness can be related to a plant’s size, other factors such as wood, energy and transportation costs also impact the bottom line. It is evident that companies like Ainsworth and Grant have larger average plant capacities—600 to 700 million square feet per plant—as compared to companies like US-based Huber and Georgia-Pacific, who were earlier entrants to OSB production and have average plant sizes in the 300 million square feet range.

On the financial front, OSB in Europe has not generated anywhere near the returns that the US market has offered. With only eleven OSB mills operating in Europe, the market segment is very young and is being developed. Too many new mills in Europe without an established market have meant operating rates have been well below 90 per cent of capacity for most of this decade. OSB output in Europe was 2.8 billion square feet in 2003, with operating rates at 81 per cent, which is paltry by North American standards. Production is predicted to reach 3.1 billion square feet in 2004 with an improvement in operating rates to 90 per cent. The European leader is the Krono Swiss Group with five mills—in Germany, France, Poland, Luxembourg and Bulgaria— which has 45 per cent of total European capacity. Canada’s Nexfor has just become the second largest player with its recent purchase of the Agglo mill in Belgium (15 per cent) and Sonae is the other company with two mills (13 per cent).

There are a number of new OSB projects being considered for Europe, including in Eastern Europe and one that could include Russia’s first plant. OSB in South America is limited to two mills: Louisiana-Pacific’s mill in Chile and Masisa’s one in Brazil. The other region of the world with OSB (older waferboard plants) is China—it has six operations with a total capacity of 90 million square feet and output that is reported to be less than half that amount. Given that China imports about 100 million square feet per year and that potential demand in China could be up to two to three billion square feet in time, a number of investigations into an OSB mill in China have been reported but without any results, at least so far. The high prices in the US have not gone unnoticed by offshore producers, as US imports (mainly from Brazil, Germany and Ireland) are up 70 per cent over 2003 (although volumes are still relatively small). This is increasing the globalization of OSB as more trade between continents opens up supply options for customers.

Russell E Taylor is president of RE Taylor & Associates Ltd, & International Wood Markets Research Inc (Publishers of WOOD Markets Monthly newsletter & WOOD Markets 2005 - The Solid Wood Products Outlook to 2008), Vancouver, BC. Phone: (604) 801-5996; e-mail: retaylor@woodmarkets.com; website: www.woodmarkets.com.

Rank Company America     America Total  %
1 Louisiana-Pacific 5,525 150 5,675 20.6
2 Weyerhaeuser2 4,170   4,170 15.1
3 Nexfor (IP, Genk)*1 3,325 610 3,935 14.3
4 Georgia-Pacific 2,272   2,272 8.2
5 Grant FP*3 1,658   1,658 6
6 Krono Swiss Group   1,590 1,590 5.8
7 Huber* 1,450   1,450 5.3
8 Ainsworth3,4,5 1,374   1,374 5
9 Potlatch5 1,282   1,282 4.6
10 Tolko2 693   693 2.5
11 Canfor (Slocan) 498    498 1.8
12 Sonae - Portugal   440 440 1.6
13 Coilitte - Ireland   432 432 1.6
14 Boise4 431   431 1.6
15 Egger - Germany   407 407 1.5
16 Martco 320   320 1.2
17 Masisa - Brazil   305 305 1.1
19 Langboard 237   237 0.9
20 Longlac 135   135 0.5
         
Global Total 23,669 3,934 27,603 100%

* Estimate 1 Includes 2004 purchase of Genk 2 Excludes Alberta mill sold from Weyco to Tolko in 2004 3 Footner reported in Grant & Ainsworth volumes 4 Excludes Boise mill sold to Ainsworth in 2004 5 Excludes Ainsworth purchase of Potlach mills in 2004

Source: Company Reports, WOOD Markets

   This service is temporarily unavailable

 


This page and all contents ©1996-2007 Logging and Sawmilling Journal (L&S J) and TimberWest Journal.
For personal or non-commercial use only.
This site produced and maintained by: Lognet.net Inc
Any questions or comments on this site can be directed to Rob Stanhope, Principal (L&S J).
Site Address: http://www.forestnet.com.

This page last modified on Wednesday, February 16, 2005

November 2004 - Logging and Sawmilling Journal -

Titlebar_sm.gif (41227 bytes)
Main Page

Features

Index Page
Contractor Profile
Trucking
Guest Column
Sawmilling
Engineered Wood
Cut-To-Length
Small Sawmilling
Spotlight
----------------
Departments

Calendar of Events

Supplier Newsline
Reader Service
Classified Ads

Tech Update
-----------------
Site Information

Contact List
Past Issues Archive
Join our Listserve

Search Our Site
---------------------

 

 

 

Nov 2004 - The Logging and Sawmilling Journal

ENGINEERED WOOD

Sizzling returns on OSB

Sizzling financial returns are driving interest in OSB operations, with Ainsworth making some major deals to acquire operations from Boise and Potlach, nudging the BC company up the list of top North American OSB producers.

By Russell Taylor

 Ainsworth has become an even larger OSB player with its purchase of an OSB mill from Boise and three OSB plants from Potlach, both deals completed this year.

Over the past eighteen months, Oriented Strand Board (OSB) has become the darling of the wood products industry, as prices cracked the US $200 per thousand square feet mark on 7/16” back in April 2003—and have stayed above this level ever since. Prices peaked at US $520 per thousand square feet, a staggering $400 over the break-even costs of many mills. The North American OSB industry is very healthy and this allowed for some further acquisitions earlier this year: Tolko’s purchase of Weyerhaeuser’s Slave Lake, Alberta mill and Ainsworth’s purchase of Boise’s Ontario mill.

The truly blockbuster deal in this sector came with Ainsworth’s announcement in late August that it would be purchasing three of Potlach’s OSB plants for US $457 million. With the Ainsworth/Potlach deal, five of the top 10 OSB producers world-wide are now Canadian-based. They are: Nexfor, Grant Forest Products, Ainsworth Lumber, Tolko Forest Products and Canfor. Looking at the big picture, North American capacity in 2003 totaled 23.7 billion square feet, representing an 86 per cent global market share. Globally, the top five companies were from North America and included Louisiana-Pacific (20.6 per cent global capacity), Weyerhaeuser (15.1 per cent), Nexfor (14.3 per cent), Georgia-Pacific (8.2 per cent) and Grant (6.0 per cent). The picture changes a bit if Ainsworth’s purchase of Boise and the Potlach mills is included in its volumes (and including its share of the Footner, Alberta mill).

Ainsworth’s volume increases to 2.23 billion square feet, representing an 8.1 per cent market share, putting it just behind Georgia-Pacific, and ahead of Grant Forest Products. The largest European company, the Krono Swiss Group, is well down the list, representing 5.8 per cent of global capacity. Since the first North American OSB mills were built in the late 1970s, the average size of the OSB plants has increased from 100 million square feet to 800 million square feet today. Consequently, companies with older plants do not have the economies of scale and technological features that the newer generation of plants can provide. While competitiveness can be related to a plant’s size, other factors such as wood, energy and transportation costs also impact the bottom line. It is evident that companies like Ainsworth and Grant have larger average plant capacities—600 to 700 million square feet per plant—as compared to companies like US-based Huber and Georgia-Pacific, who were earlier entrants to OSB production and have average plant sizes in the 300 million square feet range.

On the financial front, OSB in Europe has not generated anywhere near the returns that the US market has offered. With only eleven OSB mills operating in Europe, the market segment is very young and is being developed. Too many new mills in Europe without an established market have meant operating rates have been well below 90 per cent of capacity for most of this decade. OSB output in Europe was 2.8 billion square feet in 2003, with operating rates at 81 per cent, which is paltry by North American standards. Production is predicted to reach 3.1 billion square feet in 2004 with an improvement in operating rates to 90 per cent. The European leader is the Krono Swiss Group with five mills—in Germany, France, Poland, Luxembourg and Bulgaria— which has 45 per cent of total European capacity. Canada’s Nexfor has just become the second largest player with its recent purchase of the Agglo mill in Belgium (15 per cent) and Sonae is the other company with two mills (13 per cent).

There are a number of new OSB projects being considered for Europe, including in Eastern Europe and one that could include Russia’s first plant. OSB in South America is limited to two mills: Louisiana-Pacific’s mill in Chile and Masisa’s one in Brazil. The other region of the world with OSB (older waferboard plants) is China—it has six operations with a total capacity of 90 million square feet and output that is reported to be less than half that amount. Given that China imports about 100 million square feet per year and that potential demand in China could be up to two to three billion square feet in time, a number of investigations into an OSB mill in China have been reported but without any results, at least so far. The high prices in the US have not gone unnoticed by offshore producers, as US imports (mainly from Brazil, Germany and Ireland) are up 70 per cent over 2003 (although volumes are still relatively small). This is increasing the globalization of OSB as more trade between continents opens up supply options for customers.

Russell E Taylor is president of RE Taylor & Associates Ltd, & International Wood Markets Research Inc (Publishers of WOOD Markets Monthly newsletter & WOOD Markets 2005 - The Solid Wood Products Outlook to 2008), Vancouver, BC. Phone: (604) 801-5996; e-mail: retaylor@woodmarkets.com; website: www.woodmarkets.com.

Rank Company America     America Total  %
1 Louisiana-Pacific 5,525 150 5,675 20.6
2 Weyerhaeuser2 4,170   4,170 15.1
3 Nexfor (IP, Genk)*1 3,325 610 3,935 14.3
4 Georgia-Pacific 2,272   2,272 8.2
5 Grant FP*3 1,658   1,658 6
6 Krono Swiss Group   1,590 1,590 5.8
7 Huber* 1,450   1,450 5.3
8 Ainsworth3,4,5 1,374   1,374 5
9 Potlatch5 1,282   1,282 4.6
10 Tolko2 693   693 2.5
11 Canfor (Slocan) 498    498 1.8
12 Sonae - Portugal   440 440 1.6
13 Coilitte - Ireland   432 432 1.6
14 Boise4 431   431 1.6
15 Egger - Germany   407 407 1.5
16 Martco 320   320 1.2
17 Masisa - Brazil   305 305 1.1
19 Langboard 237   237 0.9
20 Longlac 135   135 0.5
         
Global Total 23,669 3,934 27,603 100%

* Estimate 1 Includes 2004 purchase of Genk 2 Excludes Alberta mill sold from Weyco to Tolko in 2004 3 Footner reported in Grant & Ainsworth volumes 4 Excludes Boise mill sold to Ainsworth in 2004 5 Excludes Ainsworth purchase of Potlach mills in 2004

Source: Company Reports, WOOD Markets

   This service is temporarily unavailable

 


This page and all contents ©1996-2007 Logging and Sawmilling Journal (L&S J) and TimberWest Journal.
For personal or non-commercial use only.
This site produced and maintained by: Lognet.net Inc
Any questions or comments on this site can be directed to Rob Stanhope, Principal (L&S J).
Site Address: http://www.forestnet.com.

This page last modified on Wednesday, February 16, 2005