Dundee bullish on lumber stocks (T.IFP.A) as U.S. housing recovers

Keta Kosman
0 Comments|April 25, 2014

Prices of many North American dimension lumber commodities bounced back toward three week-ago levels as severe supply-chain issues since the start of 2014 are slowly beginning to be solved, writes Keta Kosman in Madison’s Lumber Reporter www.madisonsreport.com
Solid wood traders expressed surprise this week, however, that true spring demand in many important US markets remained lukewarm at best. Pumelled into submission by headstrong customers, sellers of specialty items like Douglas fir and eastern plywood, were roundly unsuccessful in pushing up prices.
Benchmark dimension lumber commodity Western Spruce-Pine-Fir KD 2x4 R/L #2&Btr regained $9 of the $12 it lost in the past three weeks to close at US$344 mfbm (net FOB mill).
Lumber supplies in the field remained tight as wholesale yards and secondary suppliers booked orders only on wood they already had a use for. As manufactured lumber volumes increased in sawmill yards, producer warnings of expected restricted supply in the short term were shrugged off by brave purchasers. Log volumes at mills in the US and Canada were robust.

Major US home builders D.R. Horton Inc. (NYSE: DHI, Stock Forum) and Pulte Group (NYSE: PHM, Stock Forum), the two largest US home builders, reported mostly positive 1Q 2014 results the same day both companies announced a 10 per cent increase in their home prices.
D.R. Horton, out of Fort Worth, TX, reported Thursday that net home orders in 1Q totalled 8,569, up 8.8 per cent from 1Q 2013. D.R. Horton’s revenue from home sales, excluding land sales, rose 22.7 per cent to US$1.68 billion. Net income rose to US$131 million, or 38 cents per share, from US$111.0 million, or 32 cents per share, a year earlier.
PulteGroup, based in Bloomfield Hills, MI, reported also Thursday that net home orders in 1Q 2014 totalled 4,863, down 6.5 per cent from the comparable quarter of 2013. PulteGroup’s net income dropped to US$74.8 million, or 19 cents per share, from US$81.8 million, or 21 cents per share, in the same quarter of 2013. Home sales revenue fell 1 per cent to US$1.09 billion.
Investment firm Dundee Capital Markets, in an announcement of initiating coverage of several Canadian forest products companies (Canfor Corp. (TSX: T.CFP, Stock Forum), Canfor Pulp Products Inc. (TSX: T.CFX, Stock Forum), West Fraser Timber Co. Ltd. (TSX: T.WFT, Stock Forum), Domtar Corp. (TSX: T.UFS, Stock Forum), and International Forest Products Ltd. (TSX: T.IFP.A, Stock Forum), issued a note Wednesday saying, “A key point is that US lumber prices in 2013 were slightly higher than in 2005. Considering that 2013 housing starts were 926,000 and 2005 housing starts were 2.1 million augurs well for lumber prices longer term, especially as US housing recovers.”
As extreme weather conditions melted away with the longer days and warmer temperatures, buyers and sellers of manufactured forest products were at a loss to explain this continued limp demand. The most recent data for US lumber consumption and lumber imports in China show stable or improving conditions.
Most players in the lumber market acknowledge that continued constraints on credit, both for US home buyers and for North American corporations, was contributing to a general sentiment of caution. So many of the forest sector companies which have closed during the downturn made errors of stocking on inventory at the wrong time and paid a heavy price later.
Until there is a reason to increase lumber inventory — if sawmill order files stretched to four weeks for example — customers will continue the now long-held practice of just-in-time buying.
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Keta Kosman
Madison's Lumber Reporter
604 984-6838

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