Lumber sector grapples with epic wildfires and melting highways

Traders of solid wood products reported slightly slower sales this week, however expressed surprise that the usually slow-down month of July started off with such strong volumes.

Sawmills will embark on regular seasonal and maintenance curtailments over the next four weeks. Prices on most dimension lumber and panel items remained mostly flat this week, with the exception of plywood — particularly in the east.

Canadian Softwood Plywood 3/8” Toronto popped up $21, or 4.7 per cent, to C$447 msf (net FOB mill). This is a $41, or 8.9 per cent, improvement over one month ago’s C$407, and a $75, or 16.8 per cent, increase over C$372 at this time last year.

Order files at dimension lumber and panel producers were out to the beginning of August, providing confidence to sellers to deny buyer counter-offers. Customers, for their part, exhibited frustrating levels of restraint — despite ongoing depleted inventories — in refusing to buy anything beyond immediate needs at these prices.

Epic wildfires hit large parts of North America last week, especially in the north and west, foreshadowing what could be a very ugly and dangerous forest fire season this year. Solid wood producers are as ready as they can be; log yards are stocked with enough raw fibre supply to last through September. However if a big enough fire approaches a production facility, there is nothing to do but evacuate.

Already this year the massive fires in Northwest Territories have melted the highway.

Ignited by lightning strikes on hot and tinder dry forests, more than a dozen large wildfires are raging throughout the Pacific Northwest of the United States and up into British Columbia Friday. In Oregon and Washington alone, more than 310,000 acres were ablaze as of yesterday (July 17), according to the Northwest Interagency Coordination Center. That’s an area more than twice the size of the city of Chicago.

Conditions in Washington state are not as dry as they are in Oregon. Even so, half of the state is abnormally dry, and 33 percent is experiencing moderate to severe drought.

In company news, West Fraser Timber Co. Ltd. (TSX: T.WFT, Stock Forum)Wednesday reported lower year-over-year earnings in 2Q despite an increase in sales revenue. The Vancouver-based softwood lumber producer says net income in the quarter was $74 million, or 87 cents per share, compared with $109 million, or $1.27 per share, in the comparable 2013 period.

Revenue rose to $1.05 million from $900 million in 2Q 2013 and from $809 million in 1Q of this year as increased shipments in its lumber operations were offset by lower prices. Ex-items, earnings came in at $66 million, or 77 cents per share, in 2Q, compared with adjusted earnings of $107 million of $1.25 per share in the year-earlier period.

The company said shipments of lumber increased sharply in 2Q, but that both SPF and SYP prices declined.

Meanwhile, log costs are expected to trend higher in BC as competition for purchased wood increases but lumber productivity and cost reductions throughout the company’s sawmills are expected to continue to improve over the next few quarters, it said.

Reporting this week as well, Calgary-based Canadian Pacific Railway Ltd. (TSX: T.CP, Stock Forum) beat expectations and posted a 48-per-cent increase in profit in 2Q.

Revenue at Canada’s second-largest railway surged 12 per cent to $1.68-billion, while net income for the April-June period rose to $371-million, or $2.11 a share. Analysts had expected a per-share profit of $2.09 and revenue of $1.65-billion.

http://www.stockhouse.com/opinion/independent-reports/2014/07/18/lumber-sector-grapples-with-epic-wildfires-and-melting-highways