Norbord’s 2015 annual results made for positive reading when they were posted at the end of January. Not only did they highlight an adjusted EBITDA of US$122m, compared to US$115m in 2014, they also flagged up the successful completion of the merger with Ainsworth Lumber Co Ltd and announced that the £95m reinvestment at its Inverness mill had been approved by the Board of Directors.

The investment, which is further supported by a Highlands and Islands Enterprise development grant of up to €15m, will see both modernisation and expansion of the current manufacturing facility. Capacity will double to nearly 640,000m3 per year and a state-of-the-art continuous press will replace the two existing multi-daylight presses.

The plans had been on the drawing board for some time while the internal dynamics of other “significant events” were worked through.

“The Ainsworth merger had to be the focus of the senior team at Norbord,” said Robin Lampard, senior vice-president and chief financial officer of Norbord Inc.

“We announced it in December 2014 and obviously had been working on it for several months before that.”

“There was strong and wide canvas from the Board that the company shouldn’t take on two incredibly significant events at the same time,” added Karl Morris, managing director of Norbord Europe. “The integration activity with Ainsworth absorbed a lot of time and effort and to add the Inverness development on top could have stretched our resources a little thinner than we would have been comfortable with.”

In fact, the delay on pressing the go button for Inverness actually provided more evidence that the OSB market is robust enough to absorb additional capacity. “We had a very strong view of where we thought the market would move to and what the long-term picture is,” said Mr Morris. “If there is a positive in the delay it is that we could give the Board some comfort that the market growth we said would happen actually did – and, in fact, probably a little more than we anticipated.”

With Board approval added to the building permits and operational permits that had already been secured, construction work could begin immediately and groundworks commenced in February. The site will double in size, with the building for the new line being constructed on a greenfield site adjacent to the existing building. This will enable the company to continue production uninterrupted, “keeping the proposition right for customers”.

“When we start ramping the new line up we will phase down the old production and use some of the equipment to further supplement the new line,” said Mr Morris.

Final decisions on who will supply the new line have yet to be made. “We have done all the detailed engineering and have got the numbers from a range of opportunities out there. It will either be Siempelkamp or Dieffenbacher – although there is a third alternative, which is to bring a line over from Canada from the Ainsworth acquisition.”

The boost to the Inverness mill’s capacity will make Norbord the biggest OSB producer in the UK and Ireland but the development isn’t just about chasing volume. “There are some markets that have simply moved beyond the willingness to accept product from old presses,” said Mr Morris. “It’s about the finish that can be achieved [with a continuous press] to a degree, but mostly it’s about flexibility on sizing. We will have much broader market access with the new equipment.”

As for the market itself, OSB prices have softened, reflecting some capacity coming on stream in eastern Europe and finding its way to the UK but Norbord is confident that the supply and demand balance will change, bringing with it more “normalised” pricing.

“My strong view is that growth in the OSB market comes from some degree of economic improvement and house starts but the bigger part of it comes from substitution for plywood – and that has still got a long way to go,” said Mr Morris.

And, he continued, a slight oversupply situation and the resultant price response, actually accelerates the substitution. “I don’t want to be complacent but there is a sort of self-correcting aspect to oversupply because it opens up the price gap between OSB and plywood.”

Ms Lampard added that North America had already set the precedent for OSB taking market share from plywood.

“North America is probably 20 years ahead of Europe in terms of OSB substituting for plywood. In Europe we’re still in that rapid substitution phase where you see growth far in excess of a typical GDP number.

“To put some context around it, if you look at structural panel demand in North America versus Europe and what percentage of that OSB represents, in North America it’s about 65% and in Europe it’s more like 40-45%, so we’re much earlier on that substitution curve.”

Looking ahead, there are two key areas where Norbord anticipates “above average growth” for OSB.

“If you drill down to where the most obvious potential significant growth will be, the lowest substitution rates are currently within the merchant and RMI sectors,” said Mr Morris. “There is still a huge amount of plywood sold there but OSB is on the march and there will be faster growth in the RMI sector than elsewhere.

“The other area is timber frame. We expect to see house starts increase and, when we do, we would also expect the proportion of timber frame to rise within that. And timber frame is almost exclusively OSB [for sheathing products].”

Even without the capacity boost at Inverness, Norbord Inc is already the world’s largest OSB producer – thanks to the Ainsworth merger, which was completed in March 2015. So perhaps it’s no surprise to hear that its stated strategic position is focused on OSB.

“That’s the only place you will see the company grow,” said Ms Lampard. “That doesn’t take away from our commitment to our existing MDF and chipboard business in the UK. We consider that to be a core business because there is competitive advantage to being able to ship all three panel products to our customers in the UK.

“We have continued to invest quite heavily in chipboard and MDF in the UK and it remains important to the business, but you won’t see us get into chipboard and MDF anywhere else.

We’re committed to the existing business but our future growth is going to be focused on OSB.”