U & M Program


The Marketplace Winter 2017

New Siding Facility in Minnesota by 2020? Louisiana-Pacific's Update Expected in May

By Kristen Bergstrand, Utilization and Marketing coordinator, Division of Forestry, Minnesota Department of Natural Resources

While the anticipated 2017 announcement for plans to increase the capacity to produce siding in Minnesota has been delayed, the mill site in Cook, Minnesota could be online by 2020. Louisiana-Pacific (LP) Corporation is still completing engineering and operational analysis for new siding capacity and plans to identify details for a site or sites in May.

While the siding announcement was delayed, LP did report its 2016 business results for all products as well as the company's 2017 forecasts and outlooks.

LP had a record year in 2016 for their five strand siding mills, and all product divisions showed positive results. Curt Stevens, LP's chief executive officer, was quick to note this success came with only 4.9 percent growth in housing starts half of the 2016 forecasted starts. They are not returning dividends to investors at this time but will instead turn the profits into internal growth.

While single family homes and repair-and-remodel projects are expected to grow in 2017, key elements that will affect housing starts include access to building labor, quality of labor, complicated and costly housing regulations, flat rents (indicating multi-family housing starts will continue to decline), inflation, available housing in urban markets and low home inventories for sale.

Stevens talked about LP's stance on potential initiatives of the new federal administration. Concerns include increased regulations on immigration; duties imposed on facility locations; Canada border tax regulations; and potential impacts of withdrawal, renegotiation, or imposed punitive duties associated with trade agreements for goods from Mexico, Canada or China, which could raise employee cost-of-living expenses. However, new federal initiatives could also include more balanced approaches to regulations and enforcement, tax policies that increase U.S. competiveness in the global market, and changes that could make access to securing credit more available.

LP has slated 40 to 50 million dollars for capital improvement work in 2017 to increase siding capacity. This capital is slated for use at one site, multiple sites, or other potential existing or new facility siding sites yet to be identified. LP will also invest in capital improvements to increase the production capabilities of trim, soffit, lap, and panel siding at its existing strand siding mills.

LP may first invest in the mill located in Val-d'Or, Quebec, because the equipment on site has been maintained since it shut down in 2012, and getting it back online should only take 12 to 15 months. The Quebec government has not yet awarded a wood license for the facility but discussions are currently taking place. The Val-d'Or, Quebec, facility could meet the new siding capacities projected timeline to start production by the end of 2018. Conversely, the Cook, Minnesota, facility is located on a brownfield "site", and its infrastructure needs a lot more equipment and support, which will take the longer estimated 2 to 3 year time frame to bring production online.

Stevens stated that the smaller Val-d'Or mill could fill the demand for siding for about 1.5 years. Work could be done on both the Val-d'Or and Cook sites congruently because Cook will take longer to bring online, and the two facilities would likely come online sequentially to close any gaps in production. To meet the current projected siding demand, the Cook facility would need to be online sometime in or before 2020.

LP intends to transition its company from producing forest products such as oriented strand board (OSB) to building products such as engineered siding. They are focused on trends or technologies important in building materials such as acoustics, fire resistance, energy efficiency, and weather resistance that could complement or enhance their existing product lines. The company's top priorities are to:

  1. accelerate the growth of siding
  2. acquire OSB mills if available
  3. look for acquisitions that increase competiveness or complement current business, and
  4. implement high return capital projects.

LP remains an interested buyer of OSB mills in North America located in aspen timberland resources.

LP is a manufacturer of engineered wood building products and is traded on the New York Stock Exchange under "LPX." It is located in Nashville, Tennessee.

References:
Q4 2016 Louisiana-Pacific Corporate Earnings Conference call webcast and Q4 2016 Earnings Release Presentation. (Click on "events," then "past events.")