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A surge in construction of new oriented strand board (OSB) plants from 1995-1997 led to an historic production increase that forever changed the face of structural panel markets in North America.
During that mid-1990s period, a total of 21 new OSB mills came online with a combined annual capacity of 8.3 billion square feet (bsf) on a 3/8-inch basis. Not unexpectedly, the massive production increase would leave an indelible mark on the price structure of OSB, but also led to a sea change in how builders constructed single-family homes.
In 1995, total production of OSB in North America was 11.2 bsf, so it’s easy to see how a jump of 8.3 bsf in additional OSB annual capacity would have a profound effect on the market. While demand for OSB was on the increase in the mid-1990s following the early ‘90s recession, the new production swamped the market with OSB.
The impact, price-wise, was most notable in the first half of 1997. The low-water mark came in May of 1997 when the price of 7/16-inch reported by Random Lengths in Eastern Canada fell to $107. Some veterans still trading OSB say that for the only time in their careers, they made purchases that dipped below $100.
An ever-growing spread between prices of OSB and plywood sheathing allowed OSB producers to entice more builders to try their product. In 1995, OSB only had a 55% share of the new-home construction market, according to estimates by APA – The Engineered Wood Association.
Since the huge influx of OSB production in the mid-1990s, that share has steadily tilted toward OSB, which now owns a dominant 80% share of the new-home construction market.
A January 1997 article in Random Lengths noted that the price spread between plywood and OSB was growing. “Traders are groping to explain why Southern Pine plywood is selling at about the same prices as a year ago, while OSB has fallen to levels last seen in 1991,” the article stated. “Spreads between the two competing products are at record levels. For example, 7/16-inch OSB produced in the Southeast is now at a $109 discount to 15/32-inch 3-ply Southern Pine plywood from the Southeast. That spread averaged $42 from 1991 to 1995.
“Traders cite overproduction as the key to the drops in OSB prices, but some wonder how plywood has managed to hang on to its large premium. One explanation is that Southern Pine producers have shifted some production from sheathing items to specialty products such as sanded and concrete form.”
As production trends began to shift, OSB and plywood producers looked to different markets to best utilize their products. “While plywood mills have lost market share to OSB in sheathing, many producers have shifted away from commodities to specialty items,” said a Random Lengths article in August 1997. “Plywood producers tout their product’s greater versatility as a key factor allowing them to penetrate niche markets.”
Even in 1997, many plywood producers saw the writing on the wall when it came to OSB’s growing share of the sheathing market for new-home construction. “Let’s face it: in our industry money talks,” said one plywood producer.
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