Louisiana-Pacific May Have A Little More Gas In The Tank, But The Light Is Flashing

Between surprisingly strong housing activity and an ill-timed supply shutdown, the oriented strand board (or OSB) market is booming, with prices blowing through past peak levels around $450/msf and smashing the old 2004 housing boom pricing records. As the second-largest manufacturer of OSB, that’s good news for Louisiana-Pacific (LPX) shareholders, as the company is going to reap a surge in profits and cash flows.

The downside is that the booms never last. The price spike has been driven in large part by capacity reductions tied to COVID-19 (though some structural/cyclical shutdowns prior to COVID-19 played a role) at a time when building activity has stayed surprisingly strong and renovation/repair work has surged. Producers like Norbord (NYSE:OSB), LP, Georgia-Pacific, and Weyerhaeuser (WY) are scrambling to reactivate capacity to serve this demand, but the high prices won’t last. They never last.

I’m bullish on residential housing through 2021, and capacity additions in the OSB sector have been relatively restrained in recent years. That could leave a little gas in the tank for further share price appreciation, but I think anybody considering the shares ought to have an exit strategy in mind, as a look at a long-term chart will tell you that the cyclical corrections here have been pretty ferocious.

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Louisiana-Pacific May Have A Little More Gas In The Tank, But The Light Is Flashing