Lumber Industry Perspective 2nd Quarter 2014

Lumber prices move little in Q2

By Jesse Marzouk

Lumber Perspectives Graph Q2 2014

Lumber prices held steady throughout the second quarter of 2014. The Random Lengths Framing Lumber Composite Price (FLCP), which includes prices from a variety of softwood framing species, ended at $377 per thousand board feet (MBF) after starting the quarter at $378 per MBF. The range of prices was very tight, with the FLCP moving between $362 and $382 per MBF.

After more than six months of review, the Department of Justice (DOJ) struck down the proposed acquisition of Ainsworth Engineered by Louisiana Pacific (LP). The DOJ cited the likelihood of increased pricing of oriented strand board (OSB) in the pacific northwest and the Midwest, where the proposed entity would have a large market share. Apparently LP refused to alter the terms of the agreement when the DOJ required divesting certain mills in order to receive approval for the merger.

The refusal to allow the acquisition was an interesting one in Hilco’s opinion. Except for a brief and short-lived spike in OSB pricing in the beginning of 2013, prices have remained relatively muted. The industry is not very concentrated and the acquisition would have created the largest North American OSB producer with less than 35% market share. The DOJ has approved mergers in the containerboard industry over the last few years that resulted in International Paper having a market share of approximately 35% and a very concentrated industry with the top four producers maintaining more than 70% of industry capacity. Lastly, a number of other producers still have OSB mills that are shuttered and can be brought online as the housing market continues its recovery. This would have diluted the market share of a combined LP/ Ainsworth entity. It will be interesting to see if this decision by the DOJ extends to other industry proposals including Verso acquiring NewPage and Caraustar acquiring Newark Group.

Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.