Uncertainty in the recovery pattern of the US housing market, and the proposed merger of two big OSB manufacturers to form a global giant, has kept people on their toes in the North American market. However, with favourable sentiment in the US economy, the outlook for OSB is generally positive.

Long-term forecasts for OSB see prolonged growth, although without any sustained price increases. The industry landscape, though, is set to change, with Norbord’s intended takeover of Ainsworth Lumber due in the first quarter.

Norbord said it would be an opportunity for two low-cost producers to "leverage a commitment to low-cost operational excellence". Shares in rival OSB producer Louisiana- Pacific, which failed to pull off a merger with Ainsworth last year, went up after the deal was announced last December in anticipation of industry consolidation. Renewed confidence in the US housing market has boosted market sentiment further.

Latest figures reveal housing starts in the US beat the downgraded expectations of analysts to finish 2014 at an annual rate of 1.089 million, an increase of 8.8% for the year, better than the just-below the million mark which had been projected.

What’s more, some commentators predict a 20% rise in starts to 1.2 million for 2015. In single-family homes, builders started work in December at the fastest rate in more than six years, offering greater hope of a lift from a sluggish market. Analysts said the improvement at year-end signals a focus on the biggest part of the market, with home formations perhaps encouraged by gains in employment and consumer confidence.

Home formations had been running at about half the one million rate that a strong housing market requires. High unemployment had forced young adults to stay living at home, or share with friends or relatives. Analysts believe job and wages growth would accelerate first time buyers to provide a meaningful boost in home construction. Other analysts have warned that while affordability is a positive trend, increases in house prices and the possibility of higher interest rates cannot be ignored.

The building of single family homes increased by 7.2% in December – the highest level since March 2008. Building permits for single-family homes were up 4.5%, the biggest increase since September 2012.

Housing starts peaked at an annual rate of 2.27 million nine years ago, before crashing to fewer than 500,000 at the peak of the recession. Canadian house starts are forecast to remain stable, with the possibility of slight growth in 2015, according to the Canadian Mortgage & Housing Corporation.

"The modest decline in the trend in December reflected lower levels of both multiple and single detached starts," said Bob Dugan, CMHC’s Chief Economist.

"Overall, activity in 2014 continued to be supported by employment growth and migration, with starts remaining essentially unchanged at 189,401 compared with 187,923 in 2013. These factors are expected to continue to promote stability in the pace of new home construction during 2015."

The landscape of the OSB market will be changed by the impending takeover of Ainsworth Lumber by Norbord in a deal that will create one of the largest OSB manufacturers in the world. The new business will operate under the Norbord name and the leadership of Norbord president and ceo Peter Wijnbergen, who described the merger as providing "a common vision of enhanced service to our customers and growth in North America, Europe and Asia".

"Norbord and Ainsworth are each low-cost producers in their respective regions and with our complementary operations and a more diverse range of speciality products, we will be better able to serve our customers," he said. Ainsworth operates four OSB mills, while Norbord has 11 OSB mills, as well as other wood based panel plants. Louisiana-Pacific has 14 OSB mills.

The main incentive for the US$667m all-share deal appears to be renewed hope in the US housing market.

"This transaction puts us in an even better position to benefit from the broad-based US housing market recovery that we see happening over the next several years," Mr Wijnbergen added.

US housing construction is the single biggest engine for OSB in North America and we are perfectly situated to benefit from improving conditions. We are optimistic, and our customers remain optimistic, about the unfolding recovery," he said.

Together, the two Canadian-based companies have US$1.63bn worth of OSB sales in the US.

"On balance, we view this announcement as a potential longer-term positive for the sector, which includes our coverage of Louisiana- Pacific, Boise Cascade and Weyerhaeuser," an analyst said.