One of the world’s largest forest companies is leaning on oriented strand board (or OSB) to compensate for a very weak lumber market – it comes as engineered wood products are much more resilient in softer timber markets.
That is according to trading analysts from Seeking Alpha, which reports that West Frasers Timber’s 2021 acquisition of Norbord, then the world’s largest producer of OSB, has improved its EBITDA (or earnings before interest, taxes, depreciation, and amortization) by at least $650 million every year.
“Lumber is very dependent on renovation, repair and remodelling markets. These tend to be more discretionary than new residential buildings, which has more force behind it from the housing shortage in the USA.”
Trading analysts from the Seeking Alpha looking at the value of lumber and OSB in the USA market.
Meanwhile, “OSB shipments are growing sequentially,” and while there is some downtime at facilities, “that decline is being offset with growth at newer facilities like Allendale (West Fraser Timber’s $280m in South Carolina), which is reducing average costs as its margin profile is better than that of WFG’s existing assets.”
This is supported by Sean McLaren, West Fraser Timber’s CEO, with Wood Central (in February) reporting that “demand for North American OSB, plywood and other engineered products experienced resilient demand as new home construction markets were surprisingly robust.”
As it stands, the Vancouver-based timber giant has more than 60 facilities in Canada, the southeastern parts of the United States, the United Kingdom, and Europe, but it is 85% exposed to the North American market (70% from the US and 15% from Canada).
A market which – according to Skansa – is flooded with an oversupply of lumber, leading to timber prices “continuing to bounce around the bottom of the market.” West Fraser is the world’s largest producer of OSB, and last year, it said that the product, with LVL and MDF, was vital to becoming “the premier wood-building products company in North America.”
Could OSB overtake plywood for popularity?
Dubbed “perhaps the biggest success story in the entire history of engineered wood,” OSB – a substitute for plywood – uses longer and coarser wood to increase mechanical strength and water resistance by compressing layers of wood stands with adhesive to ensure consistent density and waterproofing.
It is frequently used in light steel frame house construction and is a material that is suitable for load-bearing applications in construction.
Already more popular than plywood in the North American structural panel market—where it now outsells plywood 2-for-1—global adoption is also growing. Earlier this year, Wood Central reported that the Australian OSB market grew by 29% during the COVID boom, and in China, government-backed mills are rapidly expanding production to meet growth in the Global South.
While plywood is considered a more premium product with better impact strength and moisture resistance, OSB is stronger, flatter, more uniform, and, most importantly, less expensive for developing markets.
In the context of West Fraser Timbers, Seeking Alpha supposed that “they are likely using their OSB business to subsidize the losses from their lumber business to put more marginal mills at competitors.”
- To find out why West Fraser Timber is part of a growing number of timber giants now investing heavily in engineered wood products, like OSB, visit Wood Central’s special feature.
