Lumber prices have surged to a 19-month high after this week's devastating storm Sandy spurred forecasts of a spike in demand for construction material, providing a lift to Canadian producers already benefiting from surprising strength in the forestry sector.
The benchmark futures contract for January delivery of lumber closed at $331.20 (U.S.) for 1,000 board feet on the Chicago Mercantile Exchange on Wednesday, up by the maximum $10 daily limit as traders focused on the need to rebuild thousands of homes destroyed or severely damaged by Sandy.
"Lumber prices are atypically high for this point in the year, and bucking a seasonal trend already," said Daryl Swetlishoff, a forest products analyst at Raymond James Ltd. "For the near term, even if the hurricane is partially a psychological impact on lumber, prices are going to be buoyant."
Canadian producers poised to meet the jump in demand include International Forest Products Ltd., Conifex Timber Inc., Canfor Corp. and West Fraser Timber Co. Ltd.
Months before Sandy blew in, Canadian lumber companies were thriving amid robust demand from the rebounding U.S. housing market and strong exports to China.
"A shock like this could keep prices higher and for longer in a season when it is typically weak," Mr. Swetlishoff said. "We're tempering our view by saying that prices were already a bit elevated."
On the supply side, there will be a slowdown in harvesting in the U.S. South due to wet conditions there hindering logging, he said, adding that natural disasters tend to have impacts on lumber markets that are "primarily psychological and usually transient."
Canadian producers suffered after U.S. housing starts plunged during the 2008-09 recession, but orders from south of the border have finally picked up this year and are expected to rise again next year, even without factoring in demand for building material from storm-stricken states.
RBC Dominion Securities Inc. analyst Paul Quinn said that as a result of the storm ruining homes, there will be incremental increases in demand for building material over the next six to 18 months.
Spot prices for Western lumber two-by-fours produced from spruce, pine and fir have reached $315 for 1,000 board feet, up from $302 a week ago and $229 a year ago, according to Random Lengths, a U.S.-based company that monitors wood prices. Prices for oriented strand board, which is used to cover up windows before storms, have also climbed.