Because Canadian lumber production curtailments are finally ending overproduction, Bloomberg analysts predict lumber futures to be pacing toward their biggest weekly gain since 1995.
Production curtailments have plagued Canadian sawmills as of late. British Columbia - Canada's largest lumber-producing province - exported just over 514 million board feet of lumber to the U.S. in October 2018, down from 645 million board feet from the same time 2017. Many Canadian lumber leaders have taken a hit - including West Fraser, Canfor, Conifex, and Interfor - and restricted lumber production, with West Fraser and Canfor curtailing production more than once. This all adds up to more than 1 billion board feet cut.
All cited challenging lumber markets, high log costs, log supply constraints, falling lumber prices, and U.S. import tariffs as factors.
“This is a good sign,” said Joshua Zaret, a Bloomberg senior analyst. “When you start to see capacity closures, it means you’re probably not that far away from the bottom of the pricing cycle.”
Bloomberg reported that lumber jumped by as much as the exchange maximum of $19, or 5.4 percent, to more than $373 per 1,000 board feet last week on the Chicago Mercantile Exchange. Lumber futures are up 18 percent this week, which is the biggest advance since 1995.
Lumber prices are down more than 40 percent from last year's peak. Canfor, among the Canadian companies most impacted, sees its stock down almost 40 percent from last year. Despite this, its shares are up about 15 percent this week.
Many of these companies are being rewarded by investors. Canfor is up 30 percent this month (15 percent this week) and West Fraser is up 22 percent. U.S. competitors, including Potlatch Deltic and Weyerhaeuser, are also seeing gains - 16 and 14 percent respectively.
Softwood lumber import tariffs of around 21 percent were levied onto Canada last year. The National Association of Home Builders (NAHB) told MarketWatch that those tariffs are restructuring the entire lumber global supply chain - incentivizing U.S. buyers to import from overseas rather than ship lumber across the Canadian border.
The U.S. South overtook Western Canada as North America's biggest lumber producing region in 2016. And it continues to grow.
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