Canadian lumber producers tumble amid slow US housing recovery

Bloomberg

West Fraser Timber Co. and Canfor Corp., Canada’s largest lumber producers, are suffering from tepid demand in the U.S. where the recovery in the housing market is stuttering.
U.S. housing starts fell a more-than-expected 8.8 percent last month, the Commerce Department said April 19. Housing demand isn’t strong enough to support lumber prices at current levels, according to Stephen Atkinson, an analyst at Dundee Capital Markets.
“This is a pretty slow recovery we’re seeing,” Joshua Zaret, a Bloomberg Intelligence analyst in New York, said in a telephone interview. “Lumber buyers have been cautious.”
The U.S. is the largest market for Vancouver-based Canfor and West Fraser, which manage timberlands in British Columbia that supply softwood such as Spruce-Pine-Fir, a widely used material used to construct house walls and roofs. The dim outlook for demand south of the border is the latest blow for Canadian producers, who are already facing a slowdown in Chinese demand and the long-term impact of the mountain pine beetle on British Columbia forests.
West Fraser, the largest North American lumber producer, has fallen 15 percent this year in Toronto. Canfor has slumped 24 percent, the sixth-worst performance on the 235-member S&P/Toronto Stock Exchange Composite Index.
Speaking on the company’s last earnings conference call in February, Canfor CEO Don Kayne said the company expected to see as much as 8 percent growth in U.S. demand for 2016 due to the “slow, but steady” improvements in housing. Chris McIver, vice president of West Fraser’s sales and marketing, struck a more cautious note on his company’s earnings call the same month, saying the housing recovery was disappointing.
While the U.S. housing market has made gains in the past few years, there’s a limited supply of available land and prices have risen faster than wages, making it harder for some Americans to buy. Confidence among U.S. home builders was little changed in April, a sign the housing market lacks momentum amid spring selling, according to the National Association of Home Builders/Wells Fargo builder sentiment index.
Residential housing starts in March decreased to an annualized rate of 1.09 million, the lowest since October, worse than any of the estimates from economists surveyed beforehand by Bloomberg. A more “normal” rate would be closer to 1.5 million.