UPDATE: BMO Capital Downgrades Louisiana-Pacific Corp (LPX) and Norbord (OSB) to Market Perform
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(Updated - August 8, 2016 8:31 AM EDT)
"Both stocks are at/near respective price targets: $20 on LPX and US$26 on Norbord. Both have performed well on the back of a strong rally in N.A. OSB prices," said Wilde. "But, strong OSB prices have shifted focus to supply additions. Any meaningful capacity increase appears unlikely before mid/late-2017. Roy O. Martin's new 750K/msf mill in East Texas will start up during 4Q17."
The analyst continued, "Recent reports in the trade press suggest that privately held Tolko is considering a restart of its 650K/msf High Prairie mill in Alberta. In total, there is ~2.4Bsf of 'idled' capacity on the sidelines--the equivalent of 11-12% of current industry supply. If too much of capacity is restarted, prices could fall even with an improving demand backdrop."
"The OSB industry has historically been highly fragmented, with little supply discipline. A late 2012/early-2013 flurry of mill restarts is only the most recent example. While one can argue that a slower growing and an increasingly consolidated industry will think/act differently in the future, we remain wary about hanging too much of an investment thesis on that argument. It is possible, but it remains an unproven hypothesis. With LPX above $20 and NBD above US$25, we think the prudent decision is to move to the sidelines," Wilde added.
Shares of Louisiana-Pacific Corp closed at $20.30 yesterday.
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