Entering text into the input field will update the search result below

Louisiana-Pacific Harvesting A Windfall In OSB, While Reinvesting In Siding

Stephen Simpson profile picture
Stephen Simpson


  • With strong housing demand and exceptional discipline among suppliers, OSB prices have moved to once-unthinkable highs, driving exceptional profits and free cash for LPX.
  • Management is reopening its Peace Valley mill, but won't be committing any resources to new capacity; with West Fraser reopening Chambord, supply is increasing about 5%.
  • LPX's priority is the siding business, and the company is converting two plants to siding production and looking to leverage higher-margin new products like ExpertFinish to continue growing share.
  • OSB prices may start easing later in 2021, but LPX can generate exceptional profits and cash flow from the housing cycle in the meantime.

Reports of the demise of the oriented strand board (or OSB) boom were certainly premature when I last wrote about Louisiana-Pacific (NYSE: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.

Oligopoly, Or Common Sense?

The level of discipline exercised by OSB producers over the last few years is exceptional and unusual. The OSB market has historically been pretty volatile, with the swings in demand from housing exacerbated by overreactions on the supply side – adding too much capacity in the good times and shuttering too much capacity in the bad times.

That hasn’t

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.