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Canada Wood-Panel Makers Seen Slowing

Wood-panel makers Norbord Inc. and Ainsworth Lumber Co., among the best-performing Canadian stocks this year, will probably cool in 2013 as the accelerating U.S. housing recovery entices producers to restart idled mills.

Norbord and Ainsworth, both controlled by Brookfield Asset Management, have more than tripled this year in Toronto trading, posting the fourth- and second-best returns respectively among companies with market values exceeding $202 million, according to data compiled by Bloomberg. A slowdown of price and share increases is possible as North American producers ramp up output of oriented-strand board, a plywood substitute, according to analysts at Toronto-Dominion Bank and ERA Forest Product Research.

“There is some risk in the second half of 2013, as you see more and more of that incremental OSB production hitting the market,” David Elstone, a Gibsons, British Columbia-based analyst at ERA, said last week in an interview. “We’re still calling for exceptionally high panel prices in the first half and then a decline from there.”

Prices for OSB and other building materials have been rising since last year after they slumped as the U.S. housing market began to collapse in 2006. “Substantial” mill closings across North America since then set the stage for a recovery in lumber, Toronto-based Bank of Nova Scotia said last week.

Lumber futures in Chicago have soared 55 percent in the past year because of an improving outlook for U.S. construction and predictions of increased demand in Asia. In that time, OSB prices have increased 86 percent, according to Random Lengths, a forest-industry news service.

The rebound in demand has benefited producers including Nashville, Tenn.-based Louisiana-Pacific Corp., the world’s largest OSB maker, which has more than doubled in New York trading this year as the U.S. housing market improved. That rise looks set to continue. The number of building permits issued in the U.S. in November climbed to a four-year high, according to Commerce Department figures released Dec. 19. A proxy for future construction, permits have increased 28 percent this year, the data show.

“We do not doubt the U.S. housing recovery, but have concerns that the restart of idled capacity will disrupt market balance and keep downward pressure on OSB prices in the mid- term,” Sean Steuart, a Toronto-based analyst at TD Newcrest Inc., said in a note to clients.

Buoyed by fatter profit margins, Toronto-based Norbord, the second largest North American OSB maker by active capacity, and Vancouver-based Ainsworth are taking steps to boost output, the research firm ERA said Nov. 27 in a note.

U.S. producers also are reopening shuttered capacity to make OSB, which is formed by bonding wood flakes together with wax and resin.