North American mills are sawing lumber at the fastest pace in six years after a recovering U.S. housing market, a beetle infestation in Canada and increasing Chinese demand drove the biggest price surge in two decades.
About 55.5 billion of the industry’s standard board feet will be made this year, 6.7% more than in 2012, CIBC World Markets estimates. Futures will average $371 per 1,000 board feet on the Chicago Mercantile Exchange in the fourth quarter, according to the mean of nine analyst estimates compiled by Bloomberg. The forecast is 9.8% above the November contract and the highest for the period since 1996.
Builders started work on the most new U.S. houses in almost five years last month and China’s economy is expanding at the quickest rate in more than a year. Supply is being constrained by the worst pine-beetle infestation on record in Canada, the biggest exporter. More than half the commercial pine in British Columbia, the largest timber-producing province, has been lost to the outbreak, government data show.
“For the first time ever, we have a recovery in North American housing alongside a very robust China market, and Canada cannot go back to peak production any time soon,” said Gerry Van Leeuwen, a vice president at consultant International Wood Markets Group in Vancouver who has worked in forestry for four decades. “The combination is raising prices worldwide.”
November futures, the only CME contract expiring in the fourth quarter, fell 2% to $338 this year. Lumber surged 44% in 2012, the most since 1993. The Standard & Poor’s GSCI gauge of 24 commodities fell 3.3% since the start of January, the MSCI All-Country World Index of equities rose 8.4% and a Bank of America Corp. index shows Treasuries returned 0.8%.
The strength of U.S. housing surprised mill owners, who had curbed production because of the recession and beetle outbreak, said David Elstone, an analyst at ERA Forest Products Research in Gibsons, British Columbia. Canadian output fell to 23.7 billion board feet last year from a peak of almost 36 billion in 2004. Supply won’t reach that level any time soon, he said.
Weyerhaeuser Co., which manages 20.3 million acres of timberland in North America, will report a 72% jump in profit this year, according to the mean of nine analyst estimates compiled by Bloomberg. Ainsworth Lumber Co., which harvests and replants forests across three Canadian provinces, will report a more than threefold advance in its most widely tracked earnings measure, the mean of four estimates shows.