Lumber was the subject of Barron’s Commodities Corner this past weekend, “Lumber For The Long Haul.”
The article highlights three reasons to be bullish the good wood:
i) The U.S. housing market is poised for a considerable
rebound. Housing starts are forecast to reach 1.15 million in 2014, up from an estimated 730,000 this year. That alone equates to
a 19% surge in North American lumber demand from 2012, to 56 billion board feet in 2014;
ii) Demand from Asia is strong and likely to remain so. Exports of softwood lumber from B.C. to China are expected to run some 4.5 billion board feet in 2012, up from less than half a billion in 2007; and
iii) A supply shortage is on the way. Pine beetles are destroying the forests of B.C.
According to Matt Wood, who manages the Vertex Managed Value Portfolio & Vertex Value Fund (from his recent Fall update) says forestry companies are no longer performing just in anticipation of a turnaround in the U.S. housing market but on the back of strong housing starts data which support the theory of a U.S. housing recovery underway.
Without a doubt, the U.S. housing market has turned a page and is for real. Wood believes we’re in the second or third inning of this forest products
secular rally. Due to the historic rout unemployment and housing has faced since the recession the turnarounds will be gradual, but they are happening nonetheless. Wood adds, “The good news for Canadian forestry companies is that they are so levered to a U.S. recovery in housing that it doesn’t take much in the way of new housing to feed their bottom line.” Some believe lumber could touch $420 per 1000 board feet in H1/13. Lumber is currently trading at ~$335 per 1,000 board feet. Pure lumber companies include: Conifex Timber (CFF) and International Forest Products (IFP.A
- Lumber Mills Trail Rebound in U.S. as Beetles Bite: Commodities (bloomberg.com)
- Lumber prices are on the rise, as homebuilding picks up (aei-ideas.org)