Sept. 20 (Bloomberg) -- The price of a plywood-like material called oriented strand board will rise more than previously expected in the U.S. this year and next as communities rebuild after Hurricane Katrina, Prudential Equity Group analyst John Tumazos said.

Prices on average for oriented strand board, known as OSB and made by gluing wood chips together, will be $320 per thousand square feet in 2005, up 16 percent from an earlier forecast of $277, Tumazos said in a Sept. 16 report to clients. He increased his 2006 estimate 27 percent to $350 from $275.

The Aug. 29 hurricane probably destroyed 293,000 homes in Alabama, Louisiana and Mississippi, Tumazos said, citing the U.S. Federal Emergency Management Agency. In addition to rebuilding destroyed homes, another 50,000 to 100,000 new ones will be built for people displaced by the storm who have moved to Baton Rouge, Louisiana; Little Rock, Arkansas; Houston and San Antonio, he said. Wood demand will be about 10 percent higher for the next 30 months, he said.

``A portion of the homeless in the diaspora of the evacuees will seek new housing units in the new cities in which their children began in new schools and they sought employment,'' said Tumazos, who is based in New York.

Oriented strand board prices have risen 52 percent since before the storm to $396.50 per thousand square feet on Sept. 19, compared with $260.50 on Aug. 26, according to data compiled by Bloomberg.

Tumazos, who declined to be interviewed, last year was rated as among the three runners up among metals analysts by Institutional Investor, behind the top three. He added forest products companies to his coverage in March 2002.

Biggest Producers

Louisiana-Pacific Corp., based in Nashville, Tennessee, is the biggest North American maker of OSB, which is more popular than plywood because it is less expensive. The boards are used to build roofs, floors and walls in homes.

Atlanta-based Georgia-Pacific Corp. and Weyerhaeuser Co. in Federal Way, Washington, also make OSB. The rebuilding effort also will boost prices for lumber and plywood, Tumazos said.

Citigroup analyst Chip Dillon increased his 2005 estimate for oriented strand board to $315 per thousand square feet on average from $310 and to $285 from $280 for 2006, according to his Sept. 15 report.

``Southern states will push up demand for lumber and panels through 2006,'' Dillon wrote. Profits by wood-products makers still will be hurt by higher energy prices, he said.

`Panic Buying'

Soaring prices for oriented strand board reflects ``panic buying'' and clogged highways, rivers and railways that make deliveries difficult in the hurricane-affected area, Fitch Inc. debt analyst Dennis Ruggles said. Disruptions should ease after the fourth quarter and prices will fall in 2006 because of more production from new oriented strand board plants, he said.

``Once the Katrina effects have died back down, panic buying abates a little bit, and you'll find prices will be back down,'' Ruggles said in an interview. ``You've got six OSB mills that have been announced and are in various stages of construction.''

Louisiana Pacific and Canfor Corp., in a joint venture, plan to begin production in the fourth quarter at a new plant in British Columbia, Canada, Louisiana Pacific said July 27. The company also plans to build a mill in Alabama that would begin production in late 2007.

Demand for wood products also is unlikely to surge significantly, Ruggles said.

``Not many are going to move back in'' to damaged neighborhoods, he said. ``New Orleans wasn't a very economically ebullient place to begin with.''

Lumber's Decline

Lumber prices have shown signs of sagging after an initial surge. Lumber futures fell 14 percent on Sept. 16 to $289.50 per thousand square feet at the Chicago Mercantile Exchange, which is 4.3 percent above the pre-hurricane level on Aug. 26.

Tumazos said the surge in prices will be more than just a blip caused by distributors speculating about demand, which he said likely will come from orders by U.S. and state governments.

The hurricane also damaged or destroyed 19 billion board feet of timber valued at $5 billion in Mississippi, Alabama and Louisiana, the U.S. Department of Agriculture estimated Sept. 15. The damage is spread across 5 million acres (2.02 million hectares) of public and private forestland in the three states.

``It is rational for a distributor or retailer to build inventory or rebuild depleted OSB inventories prior to the emergence of a huge new source of demand,'' Tumazos said. ``Governmental rebuilding agencies may procure impractically large volumes in a short time frame at any price.''

To contact the reporter on this story: Darrell Hassler in Chicago at dhassler@bloomberg.net.

Last Updated: September 20, 2005 09:37 EDT