(Adds share price in last paragraph)
By Ashutosh Pandey and Sneha Banerjee
Aug 8 Canadian wood panel maker Norbord Inc
sees little chance of an improvement in prices for its
main product in Europe this year as the industry diverts
production that formerly went to Russia and Ukraine to markets
such Germany and the UK.
Norbord, which makes wood-based panels known as oriented
strand board (OSB), has been focusing on Europe to compensate
for a weak house-building market in North America.
OSB, consisting of strands or chips of wood bonded together
with a synthetic resin, is cheaper than plywood and is commonly
used for flooring and roofs and as wall sheathing.
Norbord Chief Executive Peter Wijnbergen said that much of
the OSB that Russia had been importing had been passing through
ports in Ukraine, where there has been heavy fighting between
government troops and separatist rebels.
The crisis means OSB meant for Russia and Ukraine is now
being diverted to Western Europe, "holding back the OSB price
increases that we have anticipated," Wijnbergen said.
"We anticipate ... the second half will be similar to first
half from pricing perspective in Europe," Wijnbergen said in an
Norbord - which has three plants in the UK and one in
Belgium - said last month that European OSB prices fell about
1.5 percent in the second quarter compared with a year earlier.
In North America, they fell by more than a third.
Norbord, whose earnings have declined for four quarters in a
row, got about 40 percent of its revenue from Europe in the
second quarter. The company's revenue from the region rose to
$464 million in 2013, from $376 million in 2010.
RUNNING "FLAT OUT"
"In Europe, demand is growing. All the mills are running
flat out," Wijnbergen said.
Underscoring the company's longer term positive outlook for
the region, Norbord plans to build a larger OSB mill in Scotland
to take advantage of plentiful supplies of wood.
The new mill will be Norbord's biggest investment in Europe,
Wijnbergen said, declining to give financial details.
The company's last major investment was 10 years ago, when
it bought its Genk mill in Belgium for 15 million euros.
"In North America, we do not see a need for new capacity,"
Wijnbergen said. "Clearly ... we see things differently in
OSB is fast displacing plywood and other types of structural
panels in Europe, and now accounts for more than a third of the
total market compared with about 15 percent in 2002.
"Our mills are running flat out there. To go with our
customers we will need to find a way to add additional
capacity," said Wijnbergen, who took the top job on Jan. 1.
He ruled out adding capacity through acquisitions, however.
"All the mills are running flat out. So it's unlikely that
we will see mills that are available for sale."
Two of Norbord's four mills in Europe make OSB. The company
also makes furniture and other engineered wood products such as
particle board, which is made from wood chips and sawdust.
"The interesting thing is that OSB development in Europe is
running about 15 years behind in North America," CIBC analyst
Mark Kennedy told Reuters.
"So we know that there is potential for (OSB) to keep
growing for the next number of years. It will continue to take
market share from other panels."
Norbord's shares have dropped more than 35 percent this
year, lagging a near 11-percent rise in the Toronto Stock
Exchange's S&P/TSX composite index.
The shares, which closed at C$20.82 on Thursday, trade at
nearly 14 times estimated forward earnings.
(Writing by Sayantani Ghosh in Bangalore; Editing by Ted Kerr)