Reality checkThe long term may see great improvement in this industry however presently with Governments seeking a quick fix and market forces at work we need a cautious optimism.....
https://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2006-09-29T092514Z_01_N28378806_RTRUKOC_0_US-MARKETS-LUMBER.xml&from=business&src=092906_1433_INVESTING_comment_n_analysis
Housing bashes lumber price despite U.S.-Canada deal
Fri Sep 29, 2006 5:25 AM ET
By Karl Plume - ANALYSIS
CHICAGO (Reuters) - Lumber prices have lost a third of their value since January amid a cooling U.S. housing sector, and a softwood trade deal between the United States and Canada won't stem the slide soon because implementation may be delayed.
U.S. lumber supplies have piled high as Canadian mills keep aggressively producing and shipping lumber across the border to beat the tentative October 1 start of the softwood deal.
Canadian lumber companies on Wednesday sought to delay implementation of the deal, which could limit the flow of Canadian lumber into the United States.
"With all the wood that's been shipped to the U.S. to beat the October 1 deadline, there's lots of unsold wood sitting on this side of the border," said analyst Curt Cunningham, president of Pacific Futures Trading in Seattle.
"Plus with the continuing production in Canada, there just doesn't seem to be a recipe for any relief in the downtrend in pricing," he said. "You've got a record number of unsold homes sitting on the market and I don't know how long it's going to take to work through that backlog."
Canada supplies about a third of the softwood lumber used in the United States such as spruce, pine and fir, worth about $7.4 billion annually.
Lumber demand, meanwhile, is headed south as new home construction has slowed and the number of unsold homes hovers near record levels.
"You've just got too much wood chasing too few orders," said Cunningham.
"Once (sawmills) start to make the decisions to curtail production, they've still got unsold inventory to sell and you've got to be concerned that demand is going to continue to drop away from here," he said.
A few mills have slowed output, citing difficult market conditions, but more curtailments are necessary to close the wide gap between supply and demand, analysts said.
Shipments of lumber until the softwood deal is implemented are subject to a 10.8 percent duty, but about 80 percent of that will be returned to Canadian producers under the new agreement.
Once the new deal is in place, producers will be charged an export tax of up to 15 percent if U.S. prices fall below a composite index set by lumber monitoring body Random Lengths.
HOUSING MARKET ERODING
Economists expect the housing sector to continue slowing, so lumber prices will likely fall further before they improve.
New home construction has eased and new and existing home sales were declining, government statistics showed.
"We basically are still producing enough softwood lumber in North America to build roughly 2 million homes a year and we're just not going to do that," said Ashley Boeckholt, lumber analyst with Bloch Lumber.
"People have to make conscious decisions to lower the amount they are producing in order to get supply in check and I don't think we've seen enough pain yet for people to make those decisions," he said.
August housing starts fell to an annual pace of 1.665 million units, down 6.0 percent from July and down 19.8 percent from a year ago, according to the U.S. Commerce Department. In August 2005, builders were on pace to break ground on 2.075 million units.
The Commerce Department said this week that August new home sales were up an unexpected 4.3 percent from July, but it also revised July's tally downward. Analysts called that a wash.
Meanwhile, buyers have little incentive to step into the market as prices appear to have leveled off after the record five-year run and the supply of homes on the market was near an all-time record.
"As prices come down, it just means buyers have every incentive to sit on their hands and wait, which just puts more unsold homes on the market. I don't know how you unwind this gracefully," Cunningham said.
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