Review of the Canadian structural panel market - ITTO

Aug 18, 2006. /Lesprom Network/. The Canadian market for structural panels amounted to 4.42 billion square feet (3/8” basis) in 2005. By product category, this was fairly evenly split between plywood (2.23 billion square feet) and OSB (2.16 billion square feet). In the first quarter of this year (year-over-year basis), OSB consumption continued to increase moderately in spite of a sagging housing market. On the other hand, plywood consumption fell by an estimated 7% and prices retreated. North American OSB prices also weakened from their almost record-high levels in 2005, but the market still offers good returns to OSB producers. Panel imports account for 10% of Canadian demand Imports accounted for less than 10% of Canada’s structural panel demand in 2005 and continued to decline in 2006. Canada imported 176 million square feet of OSB and 210 million square feet of plywood in 2005, for a total of 386 million square feet of structural panels. Over 80% of Canadian OSB imports come from the USA and this share is increasing. The US share of Canadian plywood imports is about 70% of the total. Canada claims one-third of North American production Canada produces close to one-third of all North American (including Mexico) structural panels and over 40% of its OSB production. Canada’s total production amounted to 11.9 billion square feet of OSB plus 2.6 billion square feet of plywood in 2005, for a total of 14.5 billion square feet of structural panels. In the first quarter of this year, OSB production surged 14% (year-over-year basis) while plywood production fell 3%. USA is Canada’s largest OSB market Overall structural panel exports amounted to 10.5 billion square feet or 72% of the country’s production in 2005. During the first quarter of 2006, Canadian exports of structural panels grew 17%. Over 98% of Canadian structural panel exports went to the USA in 2005 and continue to grow in 2006. Canada’s output of OSB exceeds its consumption by a wide margin. Due to the huge production overhang, Canadian OSB mills are very dependent on exports. Last year, 83% of Canada’s OSB production (9.9 billion square feet) was sold in foreign markets, mostly to the USA. Canada’s exports of OSB are 56 times larger than USA’s while those of plywood are 1.4 times higher, for an average of 18 times larger for overall structural panels. Canada loses market share in non-US markets While the USA continues to absorb most of Canadian OSB surplus, ocean freight costs and the growing influx of European and South American OSB in offshore markets remain strong disincentives for OSB overseas sales. Canadian offshore exports fell 40 million square feet in 2005, extending a five-year trend that has seen exports contract at over 10% a year. In contrast, Canada’s plywood production is mainly consumed domestically. Canada exported 22% (573 million square feet, 3/8” basis) of its plywood production in 2005, mostly to the USA. Nevertheless, Canadian producers continue to face mounting competition from Brazil, which shipped 1.6 billion square feet to the USA in 2005 (more than tree times the volume from Canada). Brazil, China and other lower-cost producers have also marginalized Canadian exports to Japan and Europe.