SOURCE: Forestweb

March 28, 2007 09:00 ET

Speed, Extent of U.S. Housing Market Downturn in 2006 Forces North American OSB Producers to Adapt Growth Plans

LOS ANGELES, CA -- (MARKET WIRE) -- March 28, 2007 -- Forestweb, Inc. today announces the release of its annual oriented strand board (OSB) capacity survey that examines all the issues and developments in this market for 2006, including observations on the market from a number of leading players, up to the end of February 2007.

The survey finds the speed and extent of the U.S. housing downturn in 2006 took North American OSB producers by surprise after basking in the warm glow of exceptionally buoyant, and profitable, markets for more than two years.

Producers are in no doubt they have seen the end of an unprecedented three-year boom for structural panels.

Raking in huge profits, most OSB producers embarked on major capital investment projects that promised to add upwards of 8 billion ft2 of capacity by the end of 2008. But by mid-2006, the OSB sector was feeling the impact of the rapidly declining U.S. housing market.

APA-The Engineered Wood Association now expects structural panel production to total 39.9 billion ft2 (3/8 in. basis) this year, 6.7% less than in 2006.

Rick Frost, CEO of North America's largest OSB producer, Louisiana-Pacific Corp., said in February the industry was facing a "double-whammy" of weak demand and increased capacity, and suggested LP could be operating in a tough environment for "maybe a year or more."

In recent months, OSB manufacturers have slowed or halted construction on several new mills at various stages of planning and building in the U.S. and Canada, and one southern U.S. OSB mill has permanently closed.

Major producers are increasingly converting some of their existing OSB capacity over to value-added products such as oriented strand lumber (OSL), and the new mills that are under construction are all expected to have capability to produce value-added products as well as OSB.

Meanwhile, fiber availability, high fiber costs and, in some cases, other factors such as exchange rates have kept several mills indefinitely closed in the latter half of 2006 into 2007, and with the new capacity expected to prolong the downturn for OSB prices, more permanent closures are likely this year.

Assuming total North American structural panel consumption is about 40 billion ft2 in 2007, existing OSB mills working at full capacity could meet 29 billion ft2 of that demand, with another 6.4 billion ft2 to be added by the end of 2008, excluding some in the very early stages of planning.

Even by conservative estimates, North America is headed for serious over-capacity in structural panels, and with panel production booming in Asia and Europe, it is hard to see any emerging potential offshore export market for producers.

There is no expectation that all the new capacity can find a home without squeezing OSB prices more, so the year ahead should see some decisive action in this market. Some major OSB producers are believed to be assessing acquisition opportunities, and it would be surprising if we did not see a significant merger or movement of capacity between players during 2007.

Forestweb maintains a real-time database of mill capacities, including new mills and closures, and tracks all significant news related to the OSB industry. For information on OSB capacities, which new mills are on hold, which existing mills are indefinitely closed, what the trends are in value-added products and what the "wild cards" are in the OSB sector, and to get more information on obtaining the capacity survey, please contact Forestweb at solutions@forestweb.com.

About Forestweb: Forestweb, Inc., an information and technology company, provides innovative services that manage and deliver business and industry-specific intelligence. Forestweb's product offerings include the iiSolution Suite (iiHub, iiPublisher, iiReport, iiFeed), and the following business publications, The Reel Time Report and Pacific Rim Wood Market Report. Founded in 1999, Forestweb serves the following forest product sectors -- pulp, paper, packaging, recycling, forestry, logs, chips, timber, lumber and panels. The company is headquartered in Los Angeles and can be found at www.forestweb.com. For more information, email solutions@forestweb.com.

Contact Information

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    Marketing & Communications
    Forestweb, Inc.
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