Credit: Shutterstock photoIn the last few months, lumber supply from Canada, United States' biggest lumber provider, was shaken by a slew of factors like insect attack, forest fires and shortage of transportation. President Trump's decision to impose a huge tariff on lumber imports from Canada hit lumber supply from that country further and cleared the path for local players.
Declining supply boosted U.S. lumber prices , which have jumped more than 60% since the beginning of 2017. Despite, an increase in lumber prices, demand refuses to fall as evident from the fact that construction activity touched an all-time high in May and jobs data was encouraging. Also, homebuilder sentiment remained steady in July.
Lumber Producers Focusing On Maine
U.S. lumber producers are evidently busy meeting the rising demand. In this context, Pleasant River Lumber's co-president, Jason Brochu, said import duties on Canadian lumber serve as "a level playing field" for domestic players. Brochu added that Pleasant River Lumber, which has mills in Maine, will be "able to expand and produce more lumber," following these developments.
Although concerns remain over labor shortage and regulatory issues in the industry, Brochu is positive that the industry has a lot of room to expand over the long term. Additionally, Chief Economist of the National Association of Home Builders, Robert Dietz, said that producers need more land to "harvest lumber on," in order to adjust to the demand-supply gap.
NAHB Index Remains Above 50
Though the National Association of Home Builders (NAHB) sentiment index remained unchanged in July, it still remained solid and above the 50 mark, indicating improvement in the sector. The NAHB/Wells Fargo builder sentiment index was at 68 in July, after demand for single-family homes remained at a high level of 74 on the back of an encouraging jobs report.
According to Chief Economist of the NAHB, Robert Dietz, "rising construction material costs" is a concern for homebuilders, but builders have lot to gain from "growing housing demand." In this context, Dietz cautioned homebuilders to be able to manage these costs as they aim to offer "competitively priced homes." With more first-time homebuyers entering the housing market, lumber demand is clearly going to rise in coming months.
Record Construction Activity Aids Industry
Construction spending in the United States ticked up 0.4% in May, per the latest U.S. Census Bureau report. Moreover, spending on construction projects across the United States increased 4.5% in May to an all-time high of $1.31 trillion. Particularly, spending on government projects showed a remarkable 4.4% improvement while private spending rose 4.2% during the period.
Canada's lumber supply declined after a beetle attack on trees in Jasper and forest fires in Canada's British Columbia. Transportation headwinds relating to shortages of rail cars and trucks also added to supply woes. Moreover, the Trump administration imposed a duty of 20% on Canadian lumber imports last fall.
All these factors contributed to a decline in lumber supply from Canada, which in turn raised lumber prices and served as a gain for domestic companies like Lumber Liquidators Holdings, Inc. LL , Weyerhaeuser Company WY , Trex Company, Inc. TREX , Rayonier Inc. RYN and Boise Cascade Company BCC .
Shares of Lumber Liquidators Holdings, Weyerhaeuser, Trex, Rayonier and Boise Cascade rose 3.7%, 3.6%, 89.3%, 25.1% and 56%, respectively, in the last one-year period.
While Rayonier holds a Zacks Rank #2 (Buy), Boise Cascade sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Summing Up
Undoubtedly, issues in Canada have boosted lumber prices in the United States. However, along with prices, demand continues to increase on the back of solid homebuilder confidence and record high construction activity. So increase in demand should help domestic lumber producers witness growth in the coming months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
