- Strong demand from single-family builders. While weakness in other construction sectors has kept prices for most building products stable, the use of wood panels, especially OSB, is concentrated in single-family construction. Last year, single-family starts, new home sales and remodeling of owner-occupied housing posted new records.
- Capacity constraints. There have been only slight additions to OSB capacity since 2001, and plywood capacity has fallen each year since 1999.
- Insufficient inventories. Fearing a slowdown in demand, mills and dealers have kept inventories low. The recent supply problems have prompted some panic buying and speculative inventory swings that have exacerbated the current situation.
- Stagnant imports. Total OSB imports outside of North America accounted for only one and a half percent of total consumption in 2003. A significant factor behind the meager imports has been the falling value of the U.S. dollar, which has made goods from abroad more expensive.
Roughly half a dozen U.S. firms produce OSB, with Louisiana-Pacific Corp. accounting for 25% of the market. One new OSB plant will be opening this spring, and some existing plants are increasing their capacities. Yet industry experts expect that the total capacity increase for 2004 will only amount to 2%. According to APA — The Engineered Wood Association, OSB capacity hit 26.1 billion square feet in 2003 and is only anticipated to rise to 26.6 billion by the end of the year. Demand from home builders this year is expected to remain about the same as last year, but with the non-residential construction and industrial markets on the rebound, supplies are expected to remain tight throughout the year. To help combat the problem, the NAHB Research Center has prepared information on alternatives to structural plywood and OSB. For further information on these alternatives, click here. Fed up with skyrocketing prices and spot supply shortages, one South Carolina builder has switched over to an alternative product and could save roughly $100,000 this year based on current price projections. “When prices first spiked three or four months ago, I made the switch from OSB to Fiber Brace,” said Rex Thompson, president of Rex Thompson Builders Inc., who expects to build roughly 140 single-family starter homes in Columbia this year priced in the $85,000-$95,000 range. Thompson noted that Fiber Brace costs $7.25 per sheet. By comparison, he said that OSB prices in his area were quoted at $13 this month and that he has received a price quote of $20 for March. Using 60 board sheets for each home, Thompson calculates that the $12.75 price difference comes out to a savings of roughly $765 per house. Thompson added that this does not represent a savings on take-home margins. In order to keep his homes priced affordably, he has factored in an OSB package in the $5.50-$7 per sheet range. “In the starter home market, I’ve had no choice but to switch products,” he said. “This product has proved plentiful and reliable, and there is no drop in quality.” NAHB has raised its concerns over the current situation with plywood and OSB producers, noting that higher prices and constrained panel supplies not only harm builders, but are not in the best interests of the producers since shortages can quickly lead to product substitution and market share losses that are difficult to regain. For most other building materials, prices have been stable, despite the record levels of home building, because there has been a slump in nonresidential construction, which is not a heavy user of wood panels. In 1999 and 2000, prices for products such as gypsum wallboard and fiberglass insulation jumped, due to capacity shortages like those currently affecting OSB. A combination of increased capacity and reduced demand from nonresidential builders brought those prices back down. An emerging issue facing the industry could be the price and supply for metal building products. There has been a big jump in the price of scrap metal, largely attributed to heavy purchases by China. This has already had an effect on prices of metal building products, and further price increases are likely. Most of the steel used in home building, in the form of steel studs, rebars and truss plates, comes from scrap metal. Many truss producers and other steel users are warning of potential shortages. The price of petroleum-based asphalt roofing is also climbing because of movements in non-construction markets. Oil prices are a bit on the high side now, and could fall if suppliers such as Iraq and Venezuela are able to boost production. The lower dollar, however, has made the previous price levels less attractive to Saudi Arabia and other petroleum exporters, and they may try to hold prices up. | 
