Expected rebound in lumber inventory
Falling lumber prices may have caused producer shares to plummet in recent weeks, but analysts and traders say if history is any guide, stocks are poised for a rebound as the house-building season begins towards the end of the year.
Over the past 20 years, lumber prices and the stocks of the companies of West Fraser Timber Co. and Canfor Corp. at Louisiana-Pacific Corp. RBC Capital Markets analyst Paul Quinn said he didn’t expect this go-around to be any different.
“We see a positive setup for traditional seasonal trading, where stocks will typically bottom around mid-late October before recovering in anticipation of the next building season,” Quinn wrote in a note to clients earlier this month. this month.
Demand for wood products is expected to increase once homeowners return from their summer vacation and slow spending on leisure activities, he added, citing lumber traders. Quinn’s top “high-value” choices in the industry include Canfor, Conifex Timber Inc. and Western Forest Products Inc.
Lumber futures jumped more than 300% through mid-May, as stranded homeowners increased spending on do-it-yourself renovations and low mortgage rates spurred a construction boom, catching exhausted sawmills by surprise.
Anticipating a continued increase, producers increased supply and drop-in centers aggressively sourced, only to see demand fall back on Earth. Futures prices fell more than 70% in the wake and lumber merchants were forced to sell off their inventories, Quinn said.
The sudden crash took its toll on producers.
Western Forest Products is down about 20% from its peak in May, while Canfor, which announced last week that it was cutting operations at some of its British Columbia sawmills, fell more than 25%. %. Conifex Timber, which lost more than 30% over the period, announced earlier this month that it would temporarily slow production at its sawmill in Mackenzie, British Columbia, due to an “unprecedented collapse in prices. lumber price ”.
Producers in the main interior region of British Columbia, where about 14% of North America’s lumber comes from, are now “subs” with regional mill cash costs of about. $ 525 to $ 575 per thousand board feet in the second half of 2021, Canadian Imperial Bank of Commerce wrote analyst Hamir Patel in an August 19 note.
Lumber producer stocks are trading at a “significant discount” and the worst of the sale is likely over, Quinn wrote in a separate report.
“While lumber inventories will likely remain under pressure until prices start to rise, we believe the worst of the declines are over and now is the right time to start adjusting to the market. sector, ”he added.