Industry bounces back as lumber prices spike sharply

Posted by Rumin Mann
March 3rd, 2010

After three years of deep losses, the B.C. lumber industry is bouncing back with a bang, and mills that survived the deepest recession in memory are making money from two-by-fours for the first time since 2007.

Lumber prices are spiking sharply upward in the U.S. as sawmill curtailments, largely from producers in this province, are finally tightening the supply of lumber heading into the still-fragile U.S. housing market.

“There’s been a dramatic turnaround but it’s taken more than two years,” said John Allan, president of the B.C. Council of Forest Industries.

The mill curtailments have finally “bitten,” Allan said, tightening the lumber pipeline to the United States.

Companies remain cautious. There is an overhang of foreclosed homes in the U.S. to come on the market and new-home construction remains weak.

“It’s definitely bottomed, but it has a long way to go,” said Andy Carr, a sales representative at Westbank’s Gorman Brothers plant, which produces specialty boards one-inch thick for home finishings. “It’s still a fragile economy down there and as long as government programs are in place, things will look like they are getting better. But their economy is not rolling along on its own steam yet.”

At today’s prices, the mills that are still standing in B.C. are cash-positive, Allan said.

On Friday, the price of lumber closed at $317 US a thousand board feet.

A year ago, lumber was selling for $165 US a thousand board feet. The average break-even cost in the B.C. Interior is $260 US. “The price jump is strictly a supply-side response by the market,” said Rick Jeffery, president of the Coast Forest Products Association.

He said it’s prompted by producers here keeping their production down, dropping their inventories of both logs and lumber, and selling more lumber into the growing Chinese market.

B.C. lumber production is down 39 per cent since 2007, according to Statistics Canada. More than 20,000 workers have lost their jobs.

And in their recent conference calls with analysts, the heads of three of the province’s largest forest companies — Canfor, Interfor and West Fraser Timber — all said they intend to keep both curtailed shifts and mothballed sawmills down until they see stronger demand from the U.S.

Smaller producers fear that the big players may restart too soon, swamping the market with two-by-fours.

“There’s been good discipline on supply-side management from the industry, which is unusual because it’s a fragmented industry,” Jeffery said. “Everybody has taken down time, so supply is more in balance with demand.”

China’s role has also been significant in tightening the supply for the U.S. Canadian exports to China are up 135 per cent year over year for the first nine months of 2009.

In his conference call, Interfor CEO Duncan Davies told analysts Interfor is shipping 10 per cent of its lumber to China. Canfor’s Jim Shepard said Canfor is shipping eight per cent. All West Fraser’s offshore markets account for 10 per cent of production, CEO Hank Ketcham said.

The result: B.C. mills are no longer so dependent on the U.S. market.

Nowhere is that more clear than at Gorman Brothers. Before the lumber downturn, Gorman was shipping 80 per cent of its lumber into the U.S. Now, Carr said, the company is shipping 35 per cent to the U.S., 35 per cent to the domestic market and 30 per cent offshore, mostly to Japan and the Middle East.

**This is article is from the Vancouver Sun by Gordon Hamilton:

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