Analysts trim forecasts for lumber prices

June 03, 2013

By: The Vancouver Sun

A resurgence in U.S. housing construction is still expected to boost lumber prices, but analysts have trimmed their forecasts for 2013.

A 21 per cent drop in the cash price since mid-March and lower future prices have prompted several analysts to trim about five per cent off some 2013 price forecasts.

Western SPF (spruce-pine-fir) softwood prices are now expected to increase 20 per cent, on top of the 16 per cent increase realized in 2012.

CIBC and RBC now expect prices will average between US$350 and US$360 per thousand board feet in 2013, which is about $20 lower than earlier forecasts, but up from US$299 in 2012.

Mark Kennedy of CIBC World Markets also lowered his 2014 forecast price by seven per cent to US$400, from US$430.

He conceded that his outlook for lumber prices could be conservative in light of historical prices when they averaged above US$500 during several years in the 1990s and hit US$468 in 2004.

Lumber prices normally strengthen as the construction season heats up in the second quarter and weaken at the end of the year.

But prices increased by US$100 in the fourth quarter of 2012 to reach US$370 and but by May 24, about mid-way through the second quarter, they had dropped to US$320.

Kennedy attributed the decline to a stronger-than-expected price increase in the first quarter, weather-related delays in building activity, increased sawmill production and lower Chinese imports.

Paul Quinn of RBC Capital Markets maintained his outlook for 2014 at US$400 but lowered his price in 2013 to US$350, from US$370.

He also reduced his forecasts for OSB (oriented strand board) and plywood.

A 10-15 per cent increase in North American production in most regions and weak exports spell trouble in the short-term, Quinn wrote in a report.

He said the price pullback should reduce the share prices of several Canadian producers, presenting good buying opportunities for investors.

Shares of West Fraser Timber Co. (TSX:WFT) are down 16.5 per cent from their recent peak, while Canfor Corp. (TSX:CFP) are off about 20.5 per cent.

West Fraser shares gained 36 cents at $78.79 in Friday morning trading on the Toronto Stock Exchange. Canfors shares increase seven cents at $17.62.