September 3, 2010

Anemic U.S. housing concerns lumber producers

MONTREAL

Canadian lumber producers say they are concerned that weak U.S. home sales could further delay a recovery in demand for home building materials.

“AbitibiBowater is concerned by these numbers,”spokesman Pierre Choquette said, noting that the latest housing starts dipped 10 per cent to below 600,000 per year.

He said the company, which sells lumber in addition to newsprint, fears that the recent drop in housing starts signals that increasing prices and demand in the second quarter of the year were mainly due to low inventory.

Montreal-based AbitibiBowater, which hopes to exit creditor protection in October, said it has slowed production of some wood products operations in Quebec and related woodlands, affecting 50 workers.

The expiry of a home tax-credit program was already expected to hamper a rebound. But slowing economic growth, anemic jobs growth, foreclosures and tight credit conditions also remain pressures on the real estate market, said Paul Quinn of RBC Capital Markets.

Industry observers had forecast that housing starts would increase by 20 per cent this year to 645,000 units, followed by 885,000 in 2011.

“2011 looks like a sightly better repeat of 2010, so we will likely see the same volatility on lumber, plywood and OSB prices, as distribution inventories remain historically low,”he said.

He noted that softwood lumber issues that “continue to bubble below the surface”could have a “material impact”on west coast lumber producers.

Tembec said last month that it expects prices will continue to be volatile as demand will only return in mid to late 2011.

West Fraser Timber Co. recently said it expected that low U.S. housing starts would decrease lumber prices in the second half of the year. The producer noted, however, that housing starts in Canada would likely support “reasonable demand” for plywood.

But the Conference Board of Canada said recently that home building activity is also expected to slow in the second half of the year due to declining affordability.

Canadian Press

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