Sweeping Wildfires Burn Canada's Timber as Lumber Prices Surge
Comment of the Day

July 17 2017

Commentary by Eoin Treacy

Sweeping Wildfires Burn Canada's Timber as Lumber Prices Surge

This article by Jen Skerritt for Bloomberg may be of interest to subscribers. Here is a section:

Sweeping wildfires across Canada’s British Columbia are threatening timber supplies and sending lumber prices surging.

More than 375 fires have swept across the province, burning forests and forcing sawmills to shut down or evacuate. While the impact on supplies is minimal so far, there are concerns that the blazes will continue to spread amid hot, dry conditions, according to Paul Quinn, an analyst at RBC Capital Markets in Vancouver. Lumber futures on Monday jumped by the exchange limit in Chicago to the highest in more than two months.

“Forests are getting burnt, so that has a supply impact,” Quinn said by telephone. “The worry is they’ll continue to grow and get bigger,” he said, referring to the fires.

Last week, West Fraser Timber Co. suspended operations at three lumber mills that represent annual production capacity of 800 million board feet of lumber and 270 million square feet of plywood. Norbord Inc., the largest North American producer of oriented strand board used in residential construction, has also suspended production at its mill in 100 Mile House in central B.C.

On the Chicago Mercantile Exchange, lumber futures for September delivery rose by the $10 trading limit to $387.30 per 1,000 board feet at 11:37 a.m. local time. That’s the highest price for a most-active contract since May 9. Aggregate trading for this time is 44 percent above the 100-day average, according to data compiled by Bloomberg.

Cash prices for some grades of lumber rose 7 percent last week, Quinn of RBC said. “We’re at the seasonal peak in construction activity, so anything that reduces supply will create some pricing tension,” Mark Wilde, an analyst at BMO Capital Markets in New York, said in an email.

Eoin Treacy's view

According to this article British Columbia has spent about $80 million in the first few weeks of the fire season compared with $100 million in all of last year. That gives us an idea of how large the issue is and firefighters expect to be fighting conflagrations for the next few months. 

Lumber prices bounced last week from the region of the trend mean. The potential for a conclusive agreement on US/Canada trade in soft timber has been the dominating factor in pricing since the US Presidential election but fire is now a more urgent issue. 

A clear downward dynamic, or limit down day, would be required to check current scope for additional upside. 

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