After heavy rains and flooding in Canada's westernmost province closed roads and caused the world's biggest producer to stop shipments, Lumber prices are poised to return to the highs seen in June.
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According to Bloomberg, Lumber futures rose as much as 3.8% in Chicago on Tuesday to $824.50 per 1,000 board feet, which is the highest settlement price since June 24. Prices have climbed over the past two days, extending gains after West Fraser Timber Co. Ltd. said its Western Canadian lumber weekly shipments fell by 25% to 30% in the second half of the month after severe flooding in British Columbia.
Greg Kuta, founder of Westline Capital Strategies Inc., specializes in lumber trading strategies, said mills should make similar decisions. There is no point in making more than you can ship right now, especially knowing that lumber is at the bottom of the pecking order with rail car allocation. West Fraser Timber's stock fell by 3.4% to C $103.10 at 11: 54 a.m. trading on the Toronto Stock Exchange. The shares of western Canadian rivals also declined, with Canfor Corp. falling 2.9% and Interfor Corp. falling 2.3%.
A series of heavy rainstorms have washed out roads and railway tracks, which produces about 14% of North America's lumber and is Canada's biggest exporter to the U.S. The Canadian National Railway Co. said on Monday it had to stop operations near the Port of Vancouver due to ongoing water concerns.
Production cuts are larger than expected in lumber, according to Mark Wilde, BMO Capital Markets analyst. We had expected lumber to be relatively immune to disruption as most B.C. The lumber flows east to Canada and the U.S. not through the bottlenecked Vancouver region. West Fraser said that the transportation bottlenecks are hitting lumber operations. Rainfall warnings are still in effect for Vancouver, with Environment Canada forecasting a prolonged period of heavy rain through Wednesday. There is a forecast total rainfall of 60 millimeters 2.4 inches over the region, and rising freezing levels and snow melt may contribute to increased runoff.
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