Lumber surges anew as wildfires snarl logistics
Lumber futures rose the most in more than a year on concern that wildfires in Western Canada will reduce supply and spur more curtailments at sawmills.
British Columbia declared a state of emergency and Canfor Corp. said it would trim output as the fires snarl transportation and supply chains. Lumber futures rose more than seven per cent in Chicago.
The rebound extends wild gyrations that took lumber prices from a record high in May on a pandemic-fuelled construction boom to an eight-month low earlier this week after demand eased and supply was replenished. B.C. is Canada's biggest exporter of lumber to the U.S.
“We expect further curtailments in the next two weeks,” BMO Capital Markets timber and wood products analyst Mark Wilde said in a report, while noting that inventories at many producers are ample after months of rebuilding supplies.
Lumber for September delivery gained 7.7 per cent to US$584 per thousand board feet at 11:24 a.m. on the Chicago Mercantile Exchange, the biggest percentage gain since April 2020. The price is still more than 60 per cent below the high reached in May.
Rail transportation in B.C. has been hindered since a June 30 fire damaged the tracks of the two main railways that carry goods to Vancouver for export. Lines have since been repaired, but rail movement has been slow and sporadically halted due to fires.
The wildfires are not completely bullish for the lumber market, said Westline Capital Strategies Inc. chief executive Greg Kuta, whose Ohio-based firm specializes in lumber-trading strategies. “The mills are all swimming in their wood now,” Kuta said. “We need to see takeaway increase dramatically in the secondary, end-user markets and export markets to right the ship in cash,” he said, referring to the need for wood to be shipped from producers to lumberyards.
Sawmills will have a difficult time selling wood they can't transport, and they need sales and shipments to flush out the existing high-priced inventory that is on the industry's books right now.
Tumbling lumber prices are also “pieces of Canfor's equation,” BMO'S Wilde said, noting the steep two-month collapse in pricing as do-it-yourself renovation demand has dropped by a reported 40 per cent at big-box retailers. “after a year of `chasing inventory,' the market is now struggling with bulging inventories at many mills in the U.S. and Canada,” he said.