Market Overview

Increased Demand for Lumber Bodes Well for Struggling Industry

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Lumber prices are up thanks to increased demand from foreign buyers, especially China. So says Jon Anderson, president and publisher of the timber industry newsletter, Random Lengths.

Anderson told ABC News that for the past five years, exports of North American lumber to China from both Canada and the U.S. have been on the rise.

Anderson reports that framing lumber rose from $284 per thousand board feet a year ago to $415 in today’s market. Plywood and other kinds of paneling is up $181 to $513 from $332 a year ago.

All this is good news for wood products companies like Weyerhaeuser Co. (NYSE: WY), which has seen gains of 38 percent over the past 12 months. Weyerhaeuser closed Thursday at $29.41, down 0.68 percent.

International Paper Co. (NYSE: IP) recently had coverage initiated by Jefferies with a Buy rating and $52 price target. The stock is up 25 percent over the past 12 months but the overall good news in the industry could propel it higher.

Shares of Louisiana-Pacific Corp. (NYSE: LPX), which are up over 12 percent year to date, closed Thursday at $20.97, down 0.05 percent. Louisiana-Pacific is heavily involved in manufacturing and distributing building products for new home construction, which has helped boost stock prices over the past year.

MeadWestvaco Corp. (NYSE: MWV) recently hit a new 52-week high of $35.83 and ended the trading day, Thursday at $35.71, up 0.20 percent from its opening price.

Where will lumber prices go moving forward?

Lumber futures contracts for March 2013 delivery stood at $394.90 per 1,000 board ft. on the Chicago Mercantile Exchange Thursday, up $14.60 or nearly 4 percent on the day.

“We’re at the beginning of a long upward cycle in the housing market,” Paul Jannke, principal at Forest Economic Advisors, a Massachusetts-based consulting firm told the Financial Times. Jannke indicated that total consumption of lumber in the US would be up 10-15 percent a year for the next three years, at least, although demand is still below historic levels.

Perhaps the best indicator comes from reports like the one in the Wall Street Journal

The article points to sawmill reopenings or increased hiring in towns like Eugene, Ore. Where the Swanson Group has added 200 out of the 720 positions it previously eliminated.

Another producer, Seneca Sawmill Co. told the WSJ that it has restored hours for its 375 employees in the Eugene area, who now are almost back to the five-day workweeks they had before the recession.

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