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July 1, 2009 Dear Friend, We have upgraded LPX to Neutral from Underweight and raised our price target to $3 from Nil. Wood prices rose up to 25% in the month of June, expectedly. We have attached research reports on LPX and on the wood products sector generally. We study wood as just another cyclical commodity like aluminum, copper or steel. We increased our estimate of the September quarter oriented strand board realization by $25 and the December quarter by $10 per 000 sq ft, as we continue to expect slower winter activity. We estimate that LPX requires another $13 per 000 sq ft higher OSB price in the September 2009 quarter, or $198 divisionally or $183 per 000 sq ft per Random Lengths, to be at cash EBITDA breakeven in the OSB division. Thus, the unexpected price surge in the past three weeks closes two-thirds of the negative EBITDA margin. The increases in lumber, OSB or plywood prices "mirror" the past months' 6% rise in containerboard industry operating rates, 6% rise in the U.S. steel industry operating rate, upturns in OCC or steel scrap prices and various nonferrous metals prices traded on the LME. There is increasing evidence of a gradual improvement both in the U.S. and world economies reflecting combinations of restocking, less destocking, rapid economic growth in China and some emerging markets, improved credit conditions and improved business confidence. We have also attached our November 18-19, 2009 seminar agenda for you to "mark the date." Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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