Bottleneck worries send lumber to record high
By Lauren Foster in Chicago
Published: February 27 2002 23:27 | Last Updated: February 27 2002 23:34
Lumber prices hit a five-month high earlier this week as buyers scrambled to meet burgeoning demand. The mild winter, a rebound in consumer confidence from the post-September 11 lows and the drop in mortgage rates over the past year have kept home building and home sales strong. Lingering concern that a US-Canada trade dispute might further restrict supplies has also bolstered demand.
At the Chicago Mercantile Exchange, lumber for March delivery on Tuesday closed at $301 per thousand board feet - a level not seen since September 5. By Wednesday morning, it was down to $296.
The positive outlook for the housing market comes despite disappointing US new home sales. On Wednesday, the US commerce department said new home sales fell 14.8 per cent in January, in their biggest decline in eight years. While this may damp the rally over the near-term, analysts say the outlook remains good.
"I would suspect that is a bit of an aberration. There may be some seasonal factors that came into play to make it worse than expected," said Neal Schmaedick, forest products analyst at Salomon Smith Barney. "I don't think it will take the steam out of the rally unless we see more evidence. One number doesn't change the overall trend of the market."
Other recent data have offered more positive signals of an improving US economy and strength in the housing market. On Monday the National Association of Realtors said sales of existing homes in January were up a record 16.2 per cent from December. This was the biggest percentage increase since February 1968.
While lumber traders usually pay scant attention to such data, Mr Schmaedick said the figure was "so extraordinary" it got people's attention. Last week the US Commerce Department reported January housing starts were up 6.3 per cent from December. The pace of new home construction in the US rose to levels not seen since the peak of the economic boom in the 1990s.
The data may have surprised some analysts who feared that the economic uncertainty and rising job cuts threatened to undermine the housing market.
Concerns that interest rates could start to rise may also be compelling those consumers sitting on the fence to purchase while rates remain low.
The warm weather has also allowed projects to start earlier, prompting retailers and home-builder yards to scramble to increase their inventories. The strong demand has caught many retailers by surprise.
Wholesalers and retailers usually pare down their inventories in the winter months when demand is low.
Record home purchases this winter have prompted a surge in demand at do-it-yourself home improvement retailers.
The strong demand underpinned fourth-quarter profits at Home Depot and Lowe's, the largest and second largest home-improvement retailers in the world.
Matt Hemmelgarn, lumber broker with Michigan-based R.J. O'Brien, said buyers were rushing to fill their inventories.
"Lumber buyers are the best procrastinators in the commodity markets, but they have no room to wait. They have to fill their inventory for spring," he said.
Analysts noted that wood was moving through the retail channels to the job sites rather than into inventory - a positive signal that the current rally in lumber prices is driven by broad-based demand.
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