A better year may be ahead for lumber industry

CALGARY — Financial analysts say Canadian production cutbacks and a consumer-driven recovery in housing starts in the United States could mean better times for lumber and panel products this year.

In a research report, RBC analyst Paul Quinn estimates B.C. lumber producers have permanently closed mills accounting for 18 per cent of the province’s capacity, a move that is expected to help to bring North American supply in line with demand and support price increases.

He adds the closure of three oriented strandboard mills and part of another has removed about 9.5 per cent of North American OSB capacity.

RBC is forecasting U.S. housing starts will increase by about 2.5 per cent this year to 1.3 million units, driven by strength in single-family housing, and there will be further gains in lumber demand from the adoption of “mass timber” methods which allow construction of taller wooden buildings.

Meanwhile, CIBC analysts are also bullish on the lumber sector in North America, given stronger housing starts this year and their estimate of a five per cent decline in supply from last year.

In a report, they say they expect a robust spring selling season, with lumber prices and producer share prices likely to rise.

“2019 was one of the worst years in memory for lumber and OSB companies, with most reporting significant declines in profitability and seeing their equity value deteriorate,” noted RBC’s Quinn.

“However, a number of positive developments have us feeling increasingly bullish.”

U.S. home construction is already on the rise, according to the latest statistics.

Construction of new homes surged in December to the highest level in 13 years, capping a year in which falling mortgage rates and a strong labour market helped lift the prospects of the housing industry.

The Commerce Department reported Friday that builders started construction on 1.61 million homes at a seasonally adjusted annual rate in December, up 16.9% from the November pace of home building.

Housing construction has been rising since July, helped by falling mortgage rates and increased demand as the unemployment rate approached a half-century low.

The December building rate was the strongest number since December 2006 during the last housing boom.

Applications for building permits, considered a good sign of future activity, fell 3.9% in December to an annual rate of 1.42 million, but remained well above the pace in July.