Chile’s wood products industry reconstructs: what does this mean for North American markets?

USA, April 12, 2010 (RISI) - In the five weeks since the 8.8 magnitude earthquake severely damaged large sections of Chile's forest products industry, substantial sections of the industry's productive capacity has come back online, and exports of products have resumed, albeit not yet on the scale prior to the quake. Although infrastructure damage was widespread, and many mills lost power and other utilities for an extensive period of time, a significant portion of the Chilean solid wood products industry was operating as of the end of March.

Ramp-up continues in early April, and it is likely that by the end of this month the bulk of Chile's sawmill and panel operations that were running prior to the earthquake will again be operating, shipping and exporting. Nevertheless, several mills were either totally destroyed or severely damaged, and this capacity is either lost permanently or for an indefinite period of time.

Independent operators were likely worse impacted than such larger companies as Arauco, CMPC and Masisa. Insurance coverage and deeper pockets will enable these companies to better weather the recent catastrophe. In contrast, smaller independent mill operators who may not have carried insurance against earthquakes and loss of business will be stressed, especially after several years of poor markets and weak cash flow. Some smaller Chilean companies have already gone bankrupt.

In terms of the North American wood products markets, the permanent and temporary loss of Chilean supplies of plywood, lumber, MDF, millwork, mouldings and doors would have had a much greater impact if consumption had been at cyclical peaks rather than close to the lowest levels in a generation. Particularly in lumber and secondary wood products markets, there is significant excess capacity available in Chile (and elsewhere) which can be ramped up in the mid-term. An example of this is the announcement by Arauco that its second sawmill at Horcones (capacity of 175,000 m3, closed last year because of market conditions) will be reopened before the end of June, thus replacing the Arauco sawmill, which was washed away by the tsunami. Other similar developments throughout the wood products sector are likely over the next six months, particularly given the relatively high prices currently being experienced in North America and other markets.

For more information and analysis, please see the RISI Monthly Wood Products Commentaries (Lumber, Structural Panels, and Particleboard & MDF) and the new 5-Year Forecasts for Lumber, Panels and Engineered Wood Products.