OSB outperforming lumber
The recovering U.S. housing market has pushed profit margins up to stratospheric heights for oriented strand board (OSB) producers, whose engineered wood panels are outperforming lumber in the red-hot forest products sector.
April 2, 2013 By The Vancouver Sun
Scotiabank reports in its monthly Commodity Price Index that prices for OSB, which has replaced plywood in most North American housing applications, surged in February to $430 US a thousand square feet, up 100 per cent year-over-year. Profit margins are now averaging 54 per cent above the cost of production, according to Scotiabank.
Scotiabank commodities analyst Patricia Mohr cited the recovering U.S. housing market as the driver for OSB prices. As of February, new housing starts increased to 917,000 (annualized), she said, up from 718,000 a year earlier. Both home sales and home prices are climbing as well, she said.
David Elstone, analyst at ERA Forest Products Research told the Vancouver Sun that the U.S. housing recovery is not the entire story behind OSB’s remarkable performance. During the downturn, capacity shrunk to the point that even today’s modest level of housing starts is enough to cause supply shortages.
“Basically, there are too few mills left running to meet the demand,” he said. “Right now is a really unique situation where supply is trying to catch up with demand. We have this window and it may persist. We know capacity is coming back because a lot of different companies have announced (mill restarts). The thing is: What is demand going to do? Right now it is stronger than a lot of people anticipated.”
In a recent research report, RBC Capital Markets analyst Paul Quinn said that the North American OSB industry is expected to produce 19.2 billion square feet in 2013 provided U.S. housing starts are at the expected 950,000 level. That would equate to a 92-per-cent operating rate for OSB mills.
“Given that mills typically don’t run above 92 per cent, the market will be hand-to-mouth until the supply chain is able to re-build inventories in 2014,” he said.
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