Reports of the demise of the oriented strand board (or OSB) boom were certainly premature when I last wrote about Louisiana-Pacific (LPX), as the combination of strong housing demand, some lingering COVID-19 disruptions, and unprecedented industry discipline has led to prices rising from around $800/msf when I last wrote about the company to almost $1,200 at the end of last week (as per Random Lengths) – staying far above past spikes to around $450/msf and a prior long-term average of around $280/msf.
How long the boom can last is a great question and I’ve given up trying to answer it. The plant restarts from West Fraser (WFG) and LPX will expand industry capacity by more than 5%, but prices are likely to stay high into the winter as inventories very slowly rebuild. In the meantime, LPX continues to run the OSB business with a profit/cash flow maximization strategy while prioritizing reinvestments into SmartSide, a plan that certainly won’t harm OSB prices.
I don’t have particularly good answers on valuation at this point. I don’t think OSB prices can stick at these levels, but it seems as though producers have learned from the past cycles, and the siding business continues to offer upside. I can argue for a near-term fair value of $60 or more, but the reality is that the shares are likely to trade pretty closely to OSB prices and price expectations in the near term.
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Louisiana-Pacific Harvesting A Windfall In OSB, While Reinvesting In Siding
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