In an interview earlier this month with Bloomberg, West Fraser CFO Larry Hughes suggests part of the reason for the steep decline in lumber prices this year was that they rose too quickly late in 2012 and into the first quarter. He points out, in the full story here, that blogs about the lumber industry “were full of fear of (fibre) shortages” back in January.
More recently, discussion surrounding the scarcity of fibre supply has become more muted. And while the U.S. housing picture continues to look positive, the lumber market collapse this spring serves to remind it’s a global play now – as compared with years ago when it seemed all the analysis was predicated primarily on the U.S. housing market. When prices climb, lumber as a commodity finds extra supply available: mills reopen, add shifts, build more mills, areas that were too remote to haul timber from become more economical etc etc. .. And that’s just here in B.C.!
Still, the bullish headlines keep coming. For example, The Globe and Mail declares the lumber super cycle is now imminent (is it fair to characterize “by the end of 2014” imminent?). More than one forestry stock analyst has told us “If this is a baseball game, we’re in the third inning.” Traders certainly hope this is a game where the realities match the hype.