Canadian lumber producers are back in the red as the depression in the U.S. housing sector continues unabated.
Although the lumber industry has been buoyed by demand from China, which has been topping expectations, new-home builders in the United States are still the key customer for Canadian lumber – and they’re barely buying. House construction in the U.S. was far slower than normal in the second quarter, and the outlook remains bleak.
Earlier this year, investors anticipated a stronger U.S. recovery and were buoyed by the “China-China-China bandwagon,” said Paul Quinn, an analyst at RBC Dominion Securities. But after climbing through the winter, lumber prices collapsed in the spring and forest sector equities generally followed the same arc.
As second-quarter results emerge for producers, the losses are once more piling up and predictions of recovery in the U.S. housing market are being pushed farther down the road. The strong Canadian dollar – which hurts all exporters, including foresters – has exacerbated the situation.
On Tuesday, Montreal-based Tembec Inc. posted an operating loss of $16-million on sales of $113-million for its lumber division in the quarter. Lumber, which accounts for about 25 per cent of Tembec’s operations, weakened from the first quarter, when the division lost $9-million on sales of $124-million.
Tembec noted that significant improvements in its lumber business won’t occur “until U.S. housing starts recover.” It did not provide a prediction.
Vancouver-based Raymond James Ltd. recently highlighted the June results for new-home construction in the United States, noting that while they were still at historically low levels, the June numbers were up 15 per cent from May and exceeded expectations. Raymond James predicts housing starts to jump 30 per cent in 2012 from this year and another 60 per cent in 2013, coming close to the U.S. historical average. Combined with demand in China, this will push lumber prices far higher, the firm believes.
The weak U.S. market also hurt industry leader West Fraser Timber Co. , which reported its second-quarter results last Thursday. Lumber accounts for about two-thirds of West Fraser’s business and the company posted an $8-million loss on operating earnings, down from a profit of $50-million a year ago. Sales slid 6 per cent. The numbers jarred investors, who beat West Fraser stock down 10 per cent last Friday and it has not recovered the loss.
Canfor Corp. , the industry’s No. 2 name, which has staked the most on the Chinese market, is to report earnings results late Thursday.