Portland. OR, Dec. 10--The party may be over for wood paneling producers, according to the Oregonian.
For most of the year, makers of plywood and oriented strand board enjoyed an enormous surge in prices. Homebuilders bought as much paneling as they could find, as new home construction surged during the summer to the highest levels in more than a decade. The benchmark price for oriented strand board, used as a base for flooring and roofs, doubled from early May to late August.
Companies such as Portland-based Louisiana-Pacific, the largest North American maker of OSB, and Federal Way, WA-based Weyerhaeuser saw their annual sales increase by double-digit percentages.
But last week, the benchmark OSB price dropped by $100 per 1,000 square feet, or 23.5 percent, to $325 per 1,000 square feet. Industry observers said the price movement looks to be on pace to drop as quickly as it rose--the result, they said, of a cold-weather slackening in the pace of building.
"The law of gravity has not been repealed," Steve Chercover, an analyst with D.A. Davidson & Co. in Lake Oswego, wrote in a research report Monday.
The surge in paneling prices had been a bright spot in an otherwise lackluster year for timber companies. Prices for office paper, newsprint and other staples have weakened in the fragile U.S. economy. A tariff dispute with Canada has complicated the economics of lumber businesses.
Industry observers agreed that last week's price tumble indicates a seasonal slowdown in home construction--and likewise demand for OSB--that will hold through the spring.
But it's anyone's guess how far prices will fall before they stabilize, said Joe Heitz, associate editor of Random Lengths, a Eugene-based forest products market research publication.
David Dugan, spokesman for LP, downplayed the price drop.
At $325 per 1,000 square feet for the benchmark price in the north-central United States, OSB producers still enjoy prices far above the average of $200 per 1,000 square feet that prevailed through the 1990s.
"This is a normal occurrence, these seasonal slowdowns where production and consumption come back into balance," Dugan said. "Inclement weather and holidays seasonally impact the housing market."
But forest-products industry analysts said the price drop was unusual in its severity. Prices for OSB have been more volatile than in previous years, Chercover wrote, because consolidation has shrunk the number of wholesalers and distributors that buy the product from mills and sell it to homebuilders.
In addition, those distributors have sought to keep thin inventories. As a result, when their supplies of OSB run dry, as they did last spring, they all call in many orders at once, forcing prices up. When demand slows because of winter weather, the order drop-off can be precipitous.
"The predicted result for structural panel prices is higher highs and lower lows," Chercover wrote.
Discipline among OSB producers also contributed to the run-up in prices this year, said Sam Sherrill, executive editor of Crow Publications, a forest products market research service in Beaverton. Few OSB mills have been brought on the market in the last year or so, which helped keep supplies tight, he said.
Sherrill said he expects prices to remain volatile for a few weeks before settling at a modestly lower price. Many distributors won't buy while prices are rising and falling so steeply, he said.
"No one wants to pay $350 for a truckload that will be worth $250 tomorrow," he said.