The Current State of the OSB Market in 2021

During the first six months of 2021, manufacturers of plywood and OSB saw a huge price surge. Summertime new home construction reached its highest levels in over a decade, leading homebuilders to make large purchases in paneling.

As of July 2021, per the National Association of Home Builders, the price of OSB has seen a 510-percent increase, according to building application and region, since January 2020 and even a 650 to 662-percent increase for certain OSB products, like 3/8” OSB sheathing. These statistics surpassed lumber’s peak price increase by almost 180 percentage points. Plywood panels, by contrast, though having also seen an 18-month price increase, only reached about half that of OSB.

Causes for the dramatic price increase cover a number of contributing factors, largely related to supply and demand and OSB’s initial affordability.

Although new housing has played a significant part, other factors have had an impact on the market and prices.

• OSB has traditionally been a more affordable alternative to plywood, largely due to more exacting manufacturing terms for plywood and its typically heavier thickness. As of 2018, construction-grade plywood in a 4’x8’ sheet cost approximately $10 while a sheet of OSB at the same size would run closer to $6. This price level, along with OSB’s lightweight strength, made it a more attractive alternative for many and helped lead to its increased popularity.
• Pre-storm board-ups and post-storm re-roofing due to severe thunderstorms and tornadoes in south-central and southeastern US in early 2021 sped up demand, which helped lead to industry shortages and spiking prices.
• As a protective measure in response to areas of civil unrest during 2020 and 2021, many businesses and retailers sought to board up windows. In consequence, construction and security companies made hurried procurements of sufficient materials, causing the inventory of some OSB suppliers to run low, consequently reducing supply and increasing prices.
• The pandemic and COVID-19 have also had an impact on the OSB market. At the initial outbreak in 2020, mills cut down on production while also unloading inventory due to concerns about an imminent housing crash. The opposite, however, is what happened. Low interest rates in the US, due to a recession, helped spur a boom in housing while people in the US also took up DIY projects and proceeded to buy up materials. Healthcare-related construction also saw an increase during the pandemic, elevating demand.

Takeaway

As of July 2021, according to the National Association of Home Builders, the price of OSB has seen a 510% increase.

Understanding OSB

OSB, or Oriented Strand Board, an engineered panel made from wood, is finding wider applications in various industries and markets. This structural panel consists of long wood strands, approximately 18 mm in thickness, bonded by waterproof and heat-cured synthetic resin-based adhesives.

Typical construction involves three cross-directional layers. The bottom and top layers have a longitudinal wood strand orientation. The core layer has a perpendicular strand orientation.

Fabrication processes can include tests for density, bending and moisture content. The result is a lightweight, strong and dimensionally stable high-density panel without voids, knotholes, laps or gaps that resists delamination, deflection, warping or thermal expansion.

More recent efforts to reduce known toxic outgassing from standard adhesives have also led to the employment of formaldehyde-free alternative adhesives, like soy-based technology and formaldehyde-free PMDI glue, as a means to increase safety.

Applications for OSB

Principle industries involved include:

• Construction
• Packaging
• Interior Furnishings

Applications for OSB include single-layer flooring, subflooring, roof and wall sheathing, deck and ceiling sheathing, web material between I-joists, structural insulated panels, industrial containers and furniture.

In new construction, oriented strand board represents the majority of wood-based structural paneling.

In 2019, wall-sheathing OSB, which tends to run at 3/8” or 7/16” in thickness, amounted to approximately two-thirds of wall-sheathing applications. OSB sheathing is designed to offer enough racking strength to support corner bracing demands and absorb the impacts of wind, seismic stress or thermal expansion.

OSB is also a major incorporation in roofing applications, particularly roof sheathing, which also made up about two-thirds of OSB consumption in 2019. Roof sheathing panels tend to run 7/16” or 15/32” in thickness, with 3/8” in low-snow areas. In addition to racking strength, these panels can also support gravity loads of snow, people or finish roofing.

OSB can also serve as both an underlayment and a subfloor in single-layer flooring systems. Wood structural panels suitable for flooring are typically 23/32” thick and can come with tongue-and-groove edges to help guard against uneven wear.

OSB Product Grades

There are four market-type splits for OSB, defined by the EN 300 European standards for structural use. These standards establish terms, specific requirements and classification for OSB products. The four OSB grades are:

• OSB/1 – Boards for general applications and for equipment or interior furniture in dry environments
• OSB/2 – Load-bearing panels for dry-environment applications
• OSB/3 – Load-bearing panels for humid environments
• OSB/4 – Load-bearing panels for heavy-duty applications in humid environments

As of 2018, OSB/1 had the greater share of the oriented strand board market due to its wide applicability in not only construction but also interior design and furniture. The ability of OSB/1 to adjust to specific densities, thicknesses, strengths, panel sizes, stiffness levels and surface textures also make it a preferred product grade among contractors and designers.

Key Industry Players

Key companies expected to show prominence in the industry will likely focus on both organic and inorganic growth through research and development as well as technology launches, capacity expansions and mergers and acquisitions.

The OSB market has generally consolidated among top players. Top market players in oriented strand board include:

• Norbord
• Louisiana-Pacific Corporation
• Georgia Pacific
• Sonae Industria
• Egger
• Dieffenbacher
• Tolko Industries
• Swiss Krono Group
• Kronospan
• Weyerhaeuser NR Company
• Baoyan Wood
• Huber
• Langbord

Current Market Size for OSB

As of 2020, the global market for oriented strand board is valued at $10.41 billion and is expected to experience a compound annual growth rate of 5.6 percent from 2021 to 2027, reaching a valuation of $15.25 billion.

Producer Flexibility

Conversely, the smaller number of production facilities and companies making OSB, due to key player consolidation, have not been equipped to deal with sudden runs on the OSB market. There are far fewer production facilities and companies for plywood and OSB than there are dimensional-lumber-oriented companies and mills.

These circumstances make OSB producers not as flexible or quick to react to demand surges compared to producers of dimension lumber, contributing to shortages.

In addition, this inflexibility causes OSB panel producers to not follow the market and set prices below the cost of production in the way dimension lumber has been known to do during slow periods, such as housing startups in 2019. OSB manufacturers will instead remain disciplined and keep prices above the cost of production, creating a sustained pricing floor to the market.

Producer consolidation has also lead to a smaller number of distributors that buy from mills and sell to builders. These distributors likewise prefer to keep thinner inventory during slower periods, causing them to quickly run out and make big mill orders during periods of high demand, driving up price.

In more recent news, however, a market correction in the form of a sharp OSB price decrease in the second half of July 2021 appeared, leading to a projected rebalance between production and consumption, possibly due to a seasonal slowdown in home construction.

Nevertheless, US homebuilding is expected to be robust for the rest of the 2021 year or into 2022.

Sustainability

Green technologies are also a current factor in OSB production.

Formaldehyde-free adhesive alternatives, including soy-based resins and MDI, seek to replace the standard UF, urea-formaldehyde, adhesives. These products reportedly eliminate chemical exposure during product curing and any consequent formaldehyde and chemical outgassing in buildings and occupied spaces, removing this health concern from composite panel products.

Another currently entertained safety measure involves modified and alternate formaldehyde resins that help seal formaldehyde content and reduce the rate of emissions.

OSB Market Growth

Overall, growth in the commercial and residential construction sector is currently expected to be a primary OSB market driver until 2025.

Apart from the US as a dominant player, building and construction is also a bustling industry in emerging economies in South America and the Asia-Pacific region. Construction in China saw an approximate 14.5-percent growth rate at a valuation of about $1.1 billion, further boosting the OSB market.

Another fundamental market driver for OSB is its validity as a more affordable substitute for plywood and hardwood, making it a more prominent factor in construction, particularly in roofs, floors and walls. The recent major increase in OSB demand over supply and the subsequent steep price increase, however, have served to alter the current scenario.

OSB has also seen increasing adoption as a structural insulated panel, which will likely act as a future market driver and a future opportunity.

Packaging is expected to play a significant part in OSB market growth, especially given increases in import and export activity, where the need for economic efficiency and recyclable packaging materials, including boxes and pallets, will drive OSB demand.

OSB’s lightweight durability will also likely make the product a common component in furniture and interior design applications.

Takeaway

Fundamental market driver for OSB is its validity as a more affordable substitute for plywood and hardwood

US Dominance in the Global OSB Market

Commercial and residential construction in the US, with major projects in California, Manhattan and Chicago, is again showing signs of strength, registering expenditures at about $1.4 trillion and making the US construction market one of the largest on the planet.

The value of all US-based new residential construction reached around $550 billion in 2019 while commercial construction, including warehouses, data centers and hotels, saw high levels of activity.

As the primary OSB end-user in the US and North America, construction for new homes made up over half of OSB use, which could potentially impact demand in the construction and furniture sector overall and boost national OSB market demand.

Potential Growth Inhibitors

Potential growth detractors may lie in price fluctuations regarding raw material as well as wood-price volatility due to weather conditions and volatility in resin and adhesive prices due to crude-oil price fluctuations.

Wildfires may also be a future consideration. Although early wildfires in western US and Canada have not really affected timber supplies or feedstock, the number and scale of forest fires in North America could impact lumber production and price by a potential increase of as much as 10 to 20 percent.

Remaining concerns surrounding emissions of formaldehyde and other volatile organic compounds may also inhibit market growth.

OSB also has issues with moisture that make it unattractive for some contractors. Although the surfaces and glues can tend to repel water, OSB edges are generally more vulnerable. This condition can lead to irreversible swelling and compromised dimensional stability.

OSB also tends to hold moisture, leading to mold concerns. Mold tends to find a more nutritional base in hardwoods, which are primary materials in OSB products.

Current OSB Market Challenges

A current market factor and a potential challenge is posed by the industry’s supply side. Growth in construction has elevated the demand for wood panels for use in structures and as furniture and interior design elements. Because of the initial low cost of oriented strand board along with its lightweight strength and versatility, OSB has become a preferred building solution.

To enhance business growth, industry players on the manufacturing side began investing in acquisitions and capacity expansion, further establishing them as key players in the industry. This consolidation lowered opportunities for new firms entering the market who would also need to contend with high capital costs and a dependency on irregular growth in the consumer base.

OSB structural panels have taken a large share in new construction projects and become an integral part of modern designs. At the same time, OSB shortages and surging high prices have resulted from the manufacturing inflexibility of a smaller group of consolidated key players while lumber prices have remained relatively stable. Given this context, the growing importance of OSB may make the topics of product scarcity and pricing worthy of more attention. If you are looking for ways to offset your OSB costs read this next: Ways to Offset Increasing OSB Prices

Takeaway

OSB shortages and surging high prices have resulted from the manufacturing inflexibility of a smaller group of consolidated key players

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