Skip to main content

The Globe and Mail

High loonie + low lumber prices = sell

With the Canadian dollar up and lumber prices down, lumber producers have been suffering throughout April. After hitting highs at the start of the month, Canfor Corp. shares have since slumped 18 per cent and West Fraser Timber Co. Ltd. shares have fallen 14 per cent.

If you're tempted to buy these dips, you might be alone: Paul Quinn, an analyst at RBC Dominion Securities, downgraded Canfor and West Fraser on Monday, slicing his recommendation on both stocks to "underperform" from "sector perform."

He noted that lumber prices surged last summer because of growing exports to China and optimism that the U.S. housing market had stabilized. The gains sent the share prices of Canadian lumber producers surging. However, a disappointing spring home-buying season in the United States has sent lumber prices retreating about 18 per cent, while the rising Canadian dollar is putting pressure on margins.

Story continues below advertisement

"Canadian manufacturers are disadvantaged relative to their U.S. peers, with manufacturing costs in (high) Canadian dollars and selling prices in (low) U.S. dollars," Mr. Quinn said in a note. "We expect earnings to suffer in the first quarter as a result."

Meanwhile, he believes that rebuilding in Japan - a boon for some lumber producers - will be delayed and, anyway, is a "non-material event" for both companies.

Report an error Licensing Options
About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.