Lumber Price Surges on Chinese Orders

Speculation that construction in China is boosting demand for imported wood drove lumber futures up in their biggest four-session rally since 2010, Bloomberg reported on February 6th. Lumber futures for March delivery rose 2.7 percent yesterday on the Chicago Mercantile Exchange, closing at $379 per 1000 board feet at 1.05 PM GMT. In four sessions the price increased by 11 percent.

China is a major factor in global lumber trading, with the lumber price highly correlated to demand from the Asian country. The fourth quarter saw China purchasing huge volumes of lumber, which drove the log prices in the country to a record level, spurring a 26 percent increase in imports from New Zealand and the US in the second half of 2012 compared to the first six months of the year.

The country seemed to have reduced its rate of buying and that, along with increased production from companies such as Vancouver-based Canfor Corp., caused prices to fall 6 percent last month. But now, according to Paul Quinn, an analyst at RBC Capital Markets, demand from the Asian country is picking up again.

Still, Quinn expected that it’s more likely that there will be a downward price movement, “because of the production response” and China’s slowing demand compared to the fourth quarter. However, he opined that if the Asian country continues to buy volumes comparable with those of Q4, prices would be supported.

Some industry executives believe that in 2013 the US will be just as important factor as China, driving the lumber market. Larry Hughes, chief financial officer of Vancouver-based West Fraser Timber Co. Ltd. said: “What really drives the market is the expectation in terms of U.S. housing.”

He also stated that China has been “a huge growth story”, opining that the Asian country is a very strong market for the lumber industry in Western Canada.

US housing starts increased by 12 percent in December to their highest level since June 2008, while building permits jumped to a rate of 909,000, the highest since July the same year. This boosted demand for lumber from Canada, which had experienced a decline in production in November. The world’s largest lumber exporter saw a 5.8 decrease in lumber output that month compared with October, the government said.