LPX achieved its fourth lowest unit costs in the past 23 quarters, dating back to mid-2005. The 2003 to 2005 era is not similar, as crude oil prices were much lower. From 2003 until the third-quarter of 2008, LPX sold over 1 billion sq ft each quarter. In nine of those quarters LPX sold over 1.4 billion sq ft of OSB in a single quarter. Now LPX achieves lower unit costs at much lower volumes near 0.8 billion sq ft per quarter, suggesting a more robust cost structure. LPX curtailed its highest cost plants and implemented other actions to cut costs, and it shows.

Random Lengths 7/16^th basis north central prices at $167 per 000 sq ft and $100+ per barrel crude oil compress margins, but are not the “worst ever.” In recent years $130 corresponded to $98.81 crude oil on 2/22/08, $138 to $66.21 crude oil on 5/29/09, $156 to $78.53 crude oil on 10/16/09 and $160 to $73.66 crude on 9/17/10. The past five years benchmarks suggest OSB nears a low.

We raised LPX to Neutral from Underweight as most of the likely declines in oriented strand board prices appear to have passed. It is possible that LPX suffers negative cash margins, but its good cost performances reduce the potential damage. There is always a chance that remodeling demand, perhaps after recent severe floods or tornadoes, or some other positive surfaces.

Faithfully,