China Effect?

I read with interest an October 8th post at here. In stark contrast to Q2’s “earnings beat parade”, it’s reported that at least one stock analyst expects lumber company earnings to underwhelm in Q3. Pointing to the resistance evident in China to current prices, we’re told that lumber supply could be backing up in North America. The expectation, according to the article, is that “lagging pricing on offshore lumber shipments will result in negative earnings revisions and earnings misses”. B.C. stumpage rate increases and the U.S. export tax are also cited as contributing factors to the weaker outlook.

Earlier today I asked Mark Kennedy at CIBC for his take on the “China Effect”. Mark tempered the negative outlook in the article, arguing “the bigger question is what will demand in China be in 2014?” He said that shipments offshore are projected to at least match, and perhaps even surpass, 2013. In the face of the surprising surge in China’s forest products imports earlier this summer, that’s saying something.

Closer to home, Mark anticipates the gradual improvement in the U.S. housing market will continue, leading to a strong North American lumber market through 2015. He cautioned that short term, the current U.S. government shutdown could begin to take a bite out of U.S. housing market activity.

Updated 10/15:

China Forest Products Import Data Released for September (CIBC)

Lumber – In September 2013 China imported 2,200,000 m3 of lumber at an average cost of $279 per m3. Lumber imports are up 31.7% compared to Sept. 2012 when they were 1,670,000 m3. YTD lumber imports are 17.540 million m3 compared to 15.260 million m3 in the prior period (up 14.9%).

Logs – In September 2013 China imported 4,270,000 m3 of logs at an average price of $204 per m3. Log imports are up 30.2% compared to Sept. 2012 when they were 3,280,000 m3. YTD log imports are 33.260 million m3 compared to 28.570 million m3 in the prior period (up 16.4%).

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