Prospects for forestry investment enterprises for 2013 and beyond are looking likely to improve with lumber prices extending their rally on account of growing demand in the United States and China. Bloomberg has reported that lumber futures reached a five-week high in Chicago, whereas China’s log prices rose to a record high in the fourth quarter of 2012.
Lumber Prices Rally
On February 6, Bloomberg reported that lumber futures for March delivery rose 2.2 percent to $387.40 per 1,000 board feet in Chicago, after reaching $389 earlier, the highest level for a most-active contract since December 28. In addition, prices have climbed 13 percent in the last six sessions on the Chicago Board of Trade, following the 44 percent increase observed in 2012.
On February 6, Bloomberg reported that lumber futures for March delivery rose 2.2 percent to $387.40 per 1,000 board feet in Chicago, after reaching $389 earlier, the highest level for a most-active contract since December 28. In addition, prices have climbed 13 percent in the last six sessions on the Chicago Board of Trade, following the 44 percent increase observed in 2012.
Growing Demand from the US and China
The most commonly cited reason for the lumber price rally is the recovery in US housing. Bloomberg quoted Lars-Goran Olsson, president of Woodstat, a Swedish forestry analysis company, as noting that there has been a strong increase in US construction and Canadian shipping volumes to China, as well as problems in raw material supplies, particularly in British Columbia. “Altogether if we are looking forward, the market for softwood lumber is going to be stronger and stronger.”
The most commonly cited reason for the lumber price rally is the recovery in US housing. Bloomberg quoted Lars-Goran Olsson, president of Woodstat, a Swedish forestry analysis company, as noting that there has been a strong increase in US construction and Canadian shipping volumes to China, as well as problems in raw material supplies, particularly in British Columbia. “Altogether if we are looking forward, the market for softwood lumber is going to be stronger and stronger.”
Bloomberg reported at the end of January that US housing starts had climbed 12.1 percent in December 2012 to an annualised 954,000 units, a rise unseen since June 2008. But prospective entrants into forestry investment ventures should keep in mind that the US housing market is not the only source of demand. Data from Wood Resources International indicates that China’s log prices rose to a record level in the fourth quarter, spurring a 26 percent increase in imports from the US and New Zealand during the second half of 2012, compared with the first six months of the year.
Prices Rising On Growing US And China Demand And Constrained Canadian Supply
The New Zealand forestry news website Friday Offcuts reported at the end of January that rising prices in North America were likely to lift lumber product prices in Japan and China, which could provide export opportunities for Russian, European and Southern Hemisphere producers. This is likely to provide benefits for forestry investment enterprises in those regions.
A report by the International Wood Markets Group, entitled “The Five Year Outlook 2013-2017”, is forecasting a shift in the global lumber supply-demand balance, with North America’s rapid recovery, Japan’s steady consumption, and China’s economic growth likely to drive overall global consumption higher.
The report predicts two distinct price spikes, the first being driven by demand increasing faster than supply through 2013 and 2014 and the second, described as “a true lumber super-cycle”, being seen in 2016 and 2017. This on account of continued demand growth in the US and Asia, together with European economic recovery and maxed-out production in Canada, all resulting in a new supply-demand imbalance. Viewed in this light, a favourable environment is forecast for forestry investment enterprises which have placed themselves well to cater for the demand.
The report predicts two distinct price spikes, the first being driven by demand increasing faster than supply through 2013 and 2014 and the second, described as “a true lumber super-cycle”, being seen in 2016 and 2017. This on account of continued demand growth in the US and Asia, together with European economic recovery and maxed-out production in Canada, all resulting in a new supply-demand imbalance. Viewed in this light, a favourable environment is forecast for forestry investment enterprises which have placed themselves well to cater for the demand.