In describing today’s over-supply of softwood lumber, attendees at the NAWLA Regional Meeting in Vancouver will recall Peter Woodbridge’s super-saturated chemistry analogy. Expanding on the theme this week at Business Vancouver, Woodbridge now likens investors in lumber stocks to “the parents of a super-star high school student who inexplicably is at risk of not graduating.” It’s an edgy article aimed at investors that’s worth reading here. Highlighted points include:

• “In explaining why lumber stock prices have fallen so quickly recently, it’s clear that Canadian lumber supply is the villain in the story. Unlike the pulp industry, which practises supply management, B.C. lumber producers prefer to keep their mills operating at high rates – even when demand softens, as it has at the moment.”
• “They have been aided and abetted by the declining value of the Canadian dollar in U.S. funds. Softwood lumber is sold in U.S. dollars. So B.C.’s mills shipping to the U.S. recently have made a windfall gain of around 20% on their export sales.”
•  “Supply management exists in the lumber industry, but it’s imposed on Canada by the Americans, who want to protect their less efficient, domestically owned sawmills. The 2006 Softwood Lumber Agreement is expiring in October and might be replaced by something more onerous.”
•  “Asia – China in particular – is chronically short of commercial timber and wood fibre.”
•  “..for softwood lumber prices to rise meaningfully, Canada’s lumber industry will have to reduce its current overproduction.”