U.S. housing and Asian demand pushes lumber prices up 60 per cent since 2011

MONTREAL – North American lumber prices have increased by 60 per cent since late 2011 on an improving U.S. housing market and elevated demand from Asia, an international forestry consulting firm says.

Wood Resources International says the random length lumber price index peaked in February while the price of sawlogs in the western United States has continued to increase early in 2013 after ending at a five-year high in 2012.

Prices have also increased in British Columbia and Eastern Canada because of tighter log supply.

The sharply improving lumber market pushed Canadian and U.S. production last year to increase by five and eight per cent respectively.

“Sawmills in the Western region have been more fortunate than mills in other regions in North America since they have been able to ship lumber both to markets in the U.S. and to Asia,” stated its industry publication Wood Resources Quarterly.

Canadian sawmills, which export most of the product south of the border, have been ramping up production to meet the growing demand. Production at facilities in eastern provinces increased 16 per cent in the fourth quarter, according to the industry publisher.

Higher U.S. demand is also prompting producers from outside North America to increase their shipments to take advantage of improving market conditions.

Meanwhile, Canadian forest products producers such as West Fraser Timber (TSX:WFT) and Canfor Corp. (TSX:CFP) have begun to see the impact of the higher prices on their earnings results.

Canfor swung to a profit in the fourth quarter, earning $21.6 million on a 25 per cent increase in sales to $721.8 million.

After tumbling in January, prices bounced back to US$390 in February.

Paul Quinn of RBC Capital Markets recently raised his target spot price for Western SPF — softwood lumber made from spruce, pine and fir trees —to US$350 per thousand board feet this year and to US$375 for 2014.

“We continue to expect that producers will add significant capacity over the next few months, which in combination with a likely pause in China buying could drive prices lower by mid-2013,” he wrote in a report.

“Over the medium-to-long term, however, we see a strong recovery in the U.S. housing market and growing Chinese demand for North American lumber pushing operating rates above the 85 per cent threshold needed for pricing power in 2014.”