As lumber prices climb off the charts during the month of June, a North American producer stated they would close one mill among British Columbia.
West Fraser Timber Co. made the announcement that they are going to impose a restriction on 314 million board feet of production across the industry. This is in addition to the already extensive list of mill owners throughout Canada who were also cutting back. As a result, the availability of timber has decreased, causing the disappearance of low prices for US home construction that we are used to.
The Closing of These Mills Is Making Lumber Prices Climb
Overall, over a billion board feet have been cut in production out of the western region of Canada in the weeks leading up to now. Temporary and permanent announcements were made by West Fraser for the entirety of Canadian sawmills. The final announcement that the lumber industry had been awaiting was presented late Monday on June 17th. The lumber industry continued its climb reaching 4.4% to $409.40 per 1,000 board feet within Chicago’s Mercantile alone. As of Tuesday, there has been a total rise of 34% for the overall month of June (Ryan Dezember and Kirk Malatis, 2019). Within the month of February, a small surge was seen within the industry. Beyond this, lumber pricing has been extremely low since May of last year.
This decrease in the market was initially caused by a combination of lumber suppliers stocking up during last year’s historic rise and unstable housing market.
The U.S Department of Commerce stated that housing plummeted by 0.9% within the month of May. This was the first shock that left everyone aware of the crashing housing market. Due to the countering of mortgage rates because of a decline in confidence, rates have fallen well below historical lows, according to the National Association of Home Builders.
British Columbia’s lumber is favored among home builders for the sheer reasoning that its easy to work with, maneuver, and it’s durable and is sustainable. West Fraser has produced 89% of the lumber within British Columbia as of 2004 and since then, they have multiplied their production abilities.
The chief of operations at West Fraser, Ray Ferris, stated, “There is insufficient timber supply to support the current lumber production capacity of the lumber mills in these locations.”
Companies within British Columbia such as West Fraser, Canfor Corporation, and Interfor Corporation have all cut back on their output for the year of 2019. According to the editor of Random Lengths Shawn Church from a price reporting firm, 1.1 Billion board feet will add up as a result of the cutbacks among these saw mills.
As of this month, these select companies have increased in stock value. Canfor is up by 30% with shares of West Fraser. For every $10 that lumber prices take a jump, this adds up to around $90 million in pretax earnings. That leaves them a 22% gain with a rise of 3.5% (Ryan Dezember, and Kirk Maltais, 2019). As for the U.S shares, we have seen 16% and 14% (Ryan Dezember and Kirk Malatis, 2019) rise in the shares of Potlatch Deltic Corporation, as well as Weyerhaeuser Company as of June 2019.
President Trump tweeted “Very good telephone conversation with the President Xi of China” as a result of the best day since January for U.S crude prices. The two have met with one another back in Japan late June.
As Lumber Prices Climb, Other Industries Are Also Experiencing Growth
As for the US oil producers, they also saw a surge in their percentages capping at 9.8%, 6.5%, and 4.9% for the companies of Oasis Petroleum Inc, Whiting Petroleum and Continental Resources (Ryan Dezember and Kirk Malatis, 2019). Unfortunately, natural gas has not seen a bump since President Donald Trump’s tweet, although the month of July delivery lost 2.43% ending at around $2.32 per million thermal units- which delayed the warm summer weather that was predicted for later in the year, during the month of July. Anyone who counts on air conditioning, such as gas producers, to generate a demand for gas to run electricity would be left unsatisfied.
Phil Flynn who is part of the Price Futures Group stated, “Power generation is coming in well below earlier expectations. If we don’t get a summer, look for a bloodbath.”
If you are planning on purchasing some lumber, do it before prices rise too much on the materials you are looking at! Check out our pricing at Rocky Mountain Forest Products, or call us today if you have any questions!
Reference:
Dezember, Ryan. “Lumber Prices Climb on Cutbacks at Canadian Sawmills.” The Wall Street Journal, Dow Jones & Company, 18 June 2019.
