Behind Lumber’s Collapse A Perfect Storm of Housing and Trade - WSJ

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1/2/2019
Behind Lumber’s Collapse: A Perfect Storm of Housing and Trade - WSJ
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COMMODITIES
Behind Lumber’s Collapse: A Perfect Storm
of Housing and Trade
Con luence of market pressures brought about an epic collapse after the commodity hit a record last
May
Lumber is stacked at a sawmill in Quebec. Tari s imposed in late 2017 on Canadian imports raised prices on softwood used by
U.S. home builders. PHOTO: CHRISTINNE MUSCHI REUTERS
By Ryan Dezember
Jan. 2, 2019 9 00 a.m. ET
Lumber futures reached a record in May that was 30% above the old all-time high set in the
early 1990s. Still, lumber ended the year as one of the worst-performing commodities.
It isn’t like other commodities had a great year. The Bloomberg Commodity Index, a basket of
22 raw materials, declined 13%.
But lumber suffered an epic collapse. Since hitting $639 per 1,000 board feet on May 17, futures
lost nearly half their value. Lumber ended at $332.50 on the Chicago Mercantile Exchange on
Monday, down 26% on the year.
A variety of factors had sent prices soaring in the first half of the year. Tariffs were placed
on imports from Canada in late 2017, raising the price of much of the softwood that is used
to build U.S. homes. Wildfires and wood-boring beetles in British Columbia crimped wood
supplies, while deliveries were delayed by rail bottlenecks and shortages of truck drivers just as
U.S. home construction seemed to be taking off.
At the time, home builders said the unprecedented rise in lumber prices was adding thousands
of dollars to the cost of new homes. Shares of big timber concerns Weyerhaeuser Co. and
PotlatchDeltic Corp. hit all-time highs.
Then the wheels began to fall off the rally. Wood ordered in a panic early in the year began
arriving by summer, filling lumber yards just as the housing market started to cool. A pair of
devastating hurricanes slowed construction activity in swaths of the Southeast while the
wettest autumn on record in Texas stymied builders there.
Meanwhile, rising interest rates and surging home prices in many of the hottest job markets
strained affordability. Housing starts, which had reached a postrecession high in May, slid
lower.
The trade dispute with China sharply reduced U.S. exports, eliminating a big outlet for
oversupply. U.S. mills revved up to take advantage of a historic glut of pine trees in the South.
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Behind Lumber’s Collapse: A Perfect Storm of Housing and Trade - WSJ
Lumber dealers now find themselves trying to sell
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wood that they piled up at high prices earlier in
the year, which is preventing many from stocking
for the spring building season with lower-cost
wood, said Stinson Dean, managing partner of
Markets
Kansas City lumber broker Deacon Lumber Co.
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“We’ve got a lot of lumber we have to chew
through before we can think about higher prices,”
Mr. Dean said. “Sawmills have to cut production.”
That has already started to happen. In recent
weeks, two of North America’s largest lumber
producers, West Fraser Timber Co. and Canfor
Corp. , announced they are reducing production
at sawmills in British Columbia in response to low lumber prices.
Curtailments at Canadian mills along with a strong home-renovation and remodeling market
has some optimistic that lumber’s slide will be short-lived.
“At some point, people will start to build up a position for next year’s building season,” Jim
Major, finance chief for building-supply firm BMC Stock Holdings Inc., told investors recently.
“And when you see that, hopefully there is some rebound in the lumber market.”
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Write to Ryan Dezember at [email protected]
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