The following is an excerpt from Canaccord Genuity’s Morning Coffee newsletter
Shares of forest products companies were down after a Bay Street analyst issued a cautionary research note where he highlighted near term risks due to the “China Effect.”
The analyst highlights two risks related to the Chinese market:
With Chinese lumber pricing approaching the US$255 per thousand board feet level, he sees potential for offshore lumber demand to back up into North America, putting downward pressure on pricing heading into earnings season;
In a reversal from last quarter’s earnings beat parade, the analyst expects lagging pricing on offshore lumber shipments to result in negative earnings revisions and potentially earnings misses when lumber companies report third quarter 2013 earnings.
The analyst also highlighted increased B.C. stumpage rates and higher U.S. lumber duties as contributing factors for weaker sequential numbers.
Despite the near term headwinds, the analyst remained positive on the medium to longer term, noting that 1.15 million 2014 and 1.34 million 2015 U.S. housing start forecasts support US$380 and US$400 benchmark average lumber pricing for 2014 and 2015 respectively.
On Tuesday,
West Fraser Timber Co. Ltd. (
TSX: T.WFT,
Stock Forum) was down 2% to $86.35, leaving a market cap of $3.5 billion, based on 40.3 million shares outstanding. The 52-week range is $95.17 and $55.39.
Canfor (
TSX: T.CFP,
Stock Forum) was down 1.2% to $21.98, leaving a market cap of $3.1 billion, based on 141.6 million shares outstanding. The 52-week range is $23.50 and $12.34.