Canadian Mills' Woes Drive Up Lumber Prices -- Update
26 October 2019 - 9:11AM
Dow Jones News
By Ryan Dezember
Beetles, tariffs and mill closures have cut into Canada's share
of the U.S. lumber market, lifting prices by about a third over the
past year and shifting even more logging to the U.S. Southeast.
About two billion board feet of annual lumber production has
been curtailed by mills in British Columbia, much of it
permanently. That equates to about 5% of North American lumber
cutting capacity, according to Raymond James analysts.
British Columbian mill owners have cited trouble obtaining logs
at desirable prices due to wood-boring beetle infestations,
harvesting restrictions related to caribou habitat and tariffs on
softwood imports into the U.S.
There is also stiff competition from the U.S. South, the
continent's other major logging region, where a historic glut of
ready-to-fell trees has depressed prices and prompted a surge in
new saw mill construction. Among those building up sawing
operations in the south are Canadian companies Canfor Corp.,
Interfor Corp. and West Fraser Timber Co.
This year's mill closures in British Columbia have punctuated a
longer trend of falling U.S. market share for Canadian timber, said
Brooks Mendell, chief executive of Forisk Consulting, which advises
timber investors. Over the past decade, Canadian softwood lumber
production capacity has shrunk to roughly 28 billion board feet a
year from about 38 billion board feet, Mr. Mendell said.
"Basically a quarter of Canada's ability to produce softwood
lumber has come off the market," he said. "When Canada shrinks, it
leaves more business for U.S. based producers."
Among the beneficiaries, he said, should be Weyerhaeuser Co.,
which reported third-quarter earnings on Friday. The Seattle-based
company has roughly 7 million acres of Southeastern timberlands,
several mills and export terminals in Louisiana and the
Carolinas.
Weyerhaeuser Chief Executive Devin Stockfish told investors
Friday that as new mills open in the South, prices for timber
around them are rising, albeit slowly. In all, he said, mills with
capacity to produce 5.5 billion board feet a year are being built
in the South, as well as facilities that turn trees into pulp for
paper and cardboard.
Keeping prices in check: soggy weather in some Southern markets
disrupted home building in places such as Nashville and Dallas
earlier this year and President Trump's trade dispute with China
limited exports from the region, he said.
Lumber futures for November delivery settled up 0.3% to $402.10
per 1,000 board feet on the Chicago Mercantile Exchange on Friday,
a 10% climb so far this month and 30% over the past year. The
futures price is also about 5% higher than spot lumber prices in
markets both in the Northwest and the Southeast, according to
pricing service Random Lengths.
The higher future price indicates optimism among traders that
inventory flushed from mothballed mills has been absorbed and that
the home-building season will extend deeper into autumn.
"Our builder customers tell us their demand continues to improve
and they intend to maintain strong building activity until winter
weather no longer permits," Mr. Stockfish said.
Write to Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
October 25, 2019 17:56 ET (21:56 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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