Chris McIver no longer winces when he looks at a map of his company's sawmills in British Columbia, Alberta and the U.S. Southeast.
With the pain dissipating from an era of low lumber prices, he has turned optimistic and is pleased to see West Fraser Timber Co. Ltd.'s sawmills receiving a stream of orders from wholesalers and distributors.
"The economy went into a recession in 2008, but the lumber business went into a depression," said Mr. McIver, West Fraser's vice-president of sales. "For the last five years we've been waiting for some sort of recovery, but we are really beginning to feel like things are getting better."
After being a wallflower for what feels like an eternity, lowly lumber has finally joined the commodity party. Lumber prices have surged to their highest level in nearly eight years, busting out of a slump and lifting the outlook for producers. The commodity's comeback has been a roller-coaster ride, but in this latest phase, industry experts say the highs will persist for longer while the lows won't be as harrowing as in the past.
Lumber's winning streak has been fuelled by a rebound in U.S. housing starts, robust exports to China, restricted timber supplies in Canada and a series of North American sawmill closures.
"Historically, high lumber prices have been transitory, lasting only for a period of months. Lumber markets will still be volatile, but structurally, with the changes in supply and demand, we see a period of sustained higher prices," said Daryl Swetlishoff, forest products analyst at Raymond James Ltd.
Prices for benchmark two-by-fours made from Western spruce, pine and fir have hit $390 (U.S.) for 1,000 board feet, with a notable a spike of $100 since October. The 34-per-cent price jump over the past three months has spurred forecasts of a commodity supercycle in which the long-suffering lumber market will enter a multiyear rally.
Canadian producers benefiting from softwood lumber's resurgence include West Fraser, Canfor Corp., International Forest Products Ltd. and Western Forest Products Inc.
"Lumber companies that have survived the downturn are now well-positioned to take advantage of the recovery. U.S. housing starts are moving up steadily," Mr. McIver said. There were an estimated 780,000 U.S. housing starts in 2012, up 28 per cent from 2011, and the upward trajectory is widely expected to continue this year.
After falling to $130 for 1,000 board feet in early 2009, lumber cash prices rallied to surpass $300 in January, 2011, according to data compiled by industry newsletter Madison's Lumber Reporter.
After a pullback to $210 in the spring of 2011, lumber prices have shot up to their recent level of $390, tripling over the past four years and bolstering producers along the way. Vancouver-based West Fraser's shares, which traded above $50 (Canadian) in the fall of 2004, got hammered by the 2008-09 recession, with the stock price tumbling to $19.91 in July of 2009. West Fraser shares have clawed their way back and closed at a record-high on Monday of $79.34 – gaining 88 per cent over the past eight months and quadrupling since the summer of 2009.
Keta Kosman, publisher of Madison's Lumber Reporter, said there will be a brief lull when orders from China slow due to the Chinese New Year on Feb. 10, but U.S. requests will start ramping up in February in anticipation of spring home building. Lumber production at Canadian sawmills in October posted a higher-than-expected increase of 7.7 per cent from a year earlier, and prices have ascended through what would normally be a winter slowdown, Ms. Kosman said. "The price jumps have been juicy, and there is still room for improvement," she said, noting that lumber traded at $440 (U.S.) for 1,000 board feet in the spring of 2004.
On the supply side, there are constraints due to timber harvest reductions in Quebec and mountain pine beetles decimating forests in the B.C. Interior.
The combination of a revived U.S. housing market and tightened timber supplies will help spark an unprecedented supercycle for lumber – a long period of rising prices for the commodity, Mr. Swetlishoff said. While there will some bumps ahead, lumber is in the early stages of an extended bull run, he said.
Canadian producers are pleasantly surprised by the buoyant market for wood products, said Ric Slaco, vice-president and chief forester at Vancouver-based International Forest Products. "Customers are identifying that they have a need for lumber, and sawmills cut to the requirements," Mr. Slaco said. "There is a sense of stability and advances in orders to Asia provide geographic diversity. Strength in lumber prices is giving the industry a sense of optimism for 2013."
Canfor Corp. is among the companies investing money to upgrade or expand sawmills to make them more efficient. Vancouver-based Canfor reopened its mill at Radium Hot Springs, B.C., last October and will upgrade a B.C. mill at Elko and another at Mackenzie at a cost of $40-million for each project this year, a focus on growth after the industry scaled back for years. An analysis by Forest Economic Advisors shows that 58 mills have been dismantled over the past five years in North America, part of 146 plants that suffered shutdowns at one point or another, representing 19 per cent of the continent's lumber production capacity.
Over the long term, there will be demand for building materials in reconstruction projects arising from widespread damage inflicted by the tsunami on Japan in 2011 and Hurricane Sandy in the U.S. Northeast in 2012.