Particleboard and MDF

Transcription

1 Particleboard and MDF Will Supply Issues Persist? North American Conference October 2017 Steven Honeyman Economist, Wood Products

2 Overview Markets have been steady thus far in 2017 for North American particleboard and MDF producers What will drive growth in the future? Imports and their effect on particleboard and MDF markets Are domestic producers losing market share to imports? The furniture market is rebounding Will this benefit domestic particleboard and MDF producers? New capacity will be coming on line Will there be enough demand to absorb the additional capacity? Costs and profitability Will market conditions improve profitability for domestic producers? 2 2

3 New Capacity Particleboard Arauco NA Grayling, MI (424 MMSF, 2018) Kronospan Eastaboga, AL ($362 million expansion, 2018) Egger Group Lexington, NC ($700 million, 2019) MDF Swiss Krono Barnwell, SC (170 MMSF, 2018) Cal Ag Willows, CA (140 MMSF, 2018) Furniture Ashley Furniture Arcadia, WI (500,000 sq. ft. expansion) La Z Boy Dayton, TN ($26 million expansion) 3 3

4 North American Particleboard: Forecast Summary Demand Demand for particleboard produced in the USA and Canada will increase in 2017 and accelerate in , driven by growth in housing starts and a strong furniture market. Capacity Particleboard capacity in the USA and Canada will grow as a new mill begins operating in D/C Ratio Prices Demand/Capacity will approach the 85% level by New capacity in 2019 will require operational capacity to be managed. Prices will trend slightly higher as growing demand allows producers to pass along cost increases. 4 4

5 US Particleboard Consumption: Furniture Production Drives Growth BSF, ¾ inch Basis Furniture R&R Nonres. Const. Residential Other Industrial

6 North American Particleboard: Residential Construction Becoming More Significant 6 Other BSF, ¾ inch Basis % Res. Const. Furniture 39% 1 52% 44%

7 North American Particleboard Consumption Will Continue to Exceed MDF/HDF BSF, ¾ Inch Basis 7.0 Particleboard 6.0 MDF

8 North American MDF: Forecast Summary Demand Demand for MDF produced in the USA and Canada will grow in , driven by growth in housing starts, repairs and remodeling, and furniture production. Capacity MDF capacity in the USA and Canada will grow as new capacity comes on line in D/C Ratio Demand/Capacity will increase over the coming years as demand grows; however, imports pose a risk to producers. Prices Prices will increase modestly as costs push prices higher. Competition from imports will continue to limit producer pricing power. 8 8

9 US MDF Consumption: Residential Uses Driving Growth BSF, ¾ inch Basis Furniture R&R Residential Other Industrial

10 Residential Construction Driving North American MDF Growth Other Res. Const. Furniture BSF, ¾ Inch % 54% % 38%

11 Sources of North American Particleboard and MDF/HDF The North American particleboard markets are primarily supplied by US and Canadian manufacturers Imports are a very small amount of total supply Just 5.7% in 2016 (209 MMSF) The import share is unlikely to climb significantly, barring a domestic price jump 11 11

12 Sources of North American Particleboard and MDF/HDF In contrast, MDF/HDF imports are extremely significant In 2016, MDF/HDF imports (panels, moldings and flooring) were 1.08 BSF Representing 33% of total supply With new capacity forthcoming, it is unlikely that the import share will increase significantly 12 12

13 US MDF Imports: July 2017 MMSF, 3/4 Inch Basis 2016 Total 2017 YTD 2016 YTD % Change Canada % China % Chile % Other Europe % Germany % Brazil % Oceania % All Others % Total 1, % 13 13

14 North American Offshore* MDF Imports Will Set New Historical High Particleboard imports approach highest level of decade Particleboard MDF BSF, ¾ Inch Basis * Note: Offshore includes Mexico 14 14

15 Trends in the US Furniture Industry US furniture industry has been growing Imports have been growing faster than production US furniture producers are losing market share to imports US furniture imports passed their previous peaks in 2014 Have continued to grow in each subsequent year Meanwhile, US furniture production in 2016 was 19% below its 2005 peak Annual Percent Change US Furniture Production US Furniture Imports % 7% % 7% % 11% % 4% 2017 (July YTD) 0.10% 10% 15 15

16 US Wood Furniture Imports Continue to Grow Billion 2015$ China Vietnam Canada Europe Americas Other Asia All Others

17 US Wood Furniture Imports: July 2017 Million US Dollars (2016) 2017 YTD 2016 YTD % Change China 6,305 2,356 10% Vietnam 2,356 1,961 20% Canada 1, % Mexico % Malaysia % Italy % Indonesia % Poland % India % Taiwan % Germany % Brazil % Thailand % All Others % Total 12,796 11,588 10% 17 17

18 US Furniture Production: Crash Followed by (Muted) Recovery = %

19 Canadian Furniture Production: Bottomed Later Than USA, Similar Recovery = %

20 Mexican MDF s Effect on North American Markets Total new capacity will be 680,000 m 3 (390 MMSF) Given the added Mexican MDF capacity and estimates of Mexican MDF consumption, we forecast that US exports to Mexico may be displaced We also believe that the new capacity will not be enough to flood the US market Will increased Mexican MDF capacity lead to more MDF furniture production? 20 20

21 US MDF Exports and Imports to Mexico 140 1, ,200 MMSF, 3/4 Inch Basis Exports Imports Furniture Imports 1, Million $ * 0 *2016 data annualized 21 21

22 North American Particleboard Markets Tighten Operational capacity still well below nameplate levels Capacity Demand BSF, ¾ Inch

23 New Capacity Increases Nameplate Levels Operational capacity will need to be more actively managed Nameplate Capacity BSF, ¾ Inch

24 North American MDF Markets Tighten Demand on North American mills will increase over the forecast Capacity Demand on NA Mills BSF, ¾ Inch

25 New Capacity Will Come on Line as Operational Capacity Approach Nameplate Levels BSF, ¾ Inch Nameplate Capacity Demand

26 North American D/C Ratios Will Improve Through Forecast 95% 90% 85% 80% 75% 70% 65% 60% 55% Particleboard MDF 50%

27 Rising Input Costs Squeezing Margins Increasing wood and resin costs are driving the increase $/MSF, ¾ Inch Basis Particleboard MDF Total Costs, US South

28 Particleboard Profitability Improving Lagging in the West Mill Realization/Average Total Cost US East Full cost breakeven US West

29 MDF Profitability Historically High Will remain elevated in near future Mill Realization/Avg. Total Cost US East US West Full cost breakeven

30 Conclusions Demand will grow over the forecast Moderate increases in PB and MDF consumption in 2017, which will accelerate in Driven by strong furniture market and residential construction Increasing demand/capacity ratios New capacity coming on line toward the end of the forecast will require active operational capacity management Small profitability improvements in the coming years Strong US dollar and added capacity will limit producers ability to increase prices despite growing demand 30 30

31 Thank you! For more information: Particleboard and MDF Commentary Wood Panels 5 Year Forecast 31