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Lumber Companies


Viking
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I have started following (once again) a couple of Canadian (BC) based lumber companies. Residential house construction in the US looks to have a long runway ahead. As home construction continues to increase in the coming years this will continue to stoke demand for lumber. Lumber prices are currently at pretty decent levels and if they move higher into the spring this will be very good for lumber companies.

 

The Canada US Softwood Lumber Agreement has also expired. This is always a very messy negotiation. There is little visibility as to how this agreement will shake out. Bottom line, Canadian producers in Eastern Canada are most at risk as they are high cost producers (Fairfax owned Resolute Forest Products). We could get some fireworks happening in January and February as a new deal gets hammered out. This could lead to a sell of of Canadian lumber companies.

 

I am following two Canadian companies:

1.) West Fraser (WFT): low cost producer; 40% of production is in US

2.) Interfor (IFP): 70% of production is in US; only 15% of production goes from Canada to US

 

I owned these companies back in 2012; since that time they have all undertaken very aggressive expansion plans of buying forestry assets in the US. A key reason is as a hedge to counter the risk of implementation of a negative Softwood Lumber Agreement. Very smart.

 

These are very volatile stocks (up and down). I would love to see:

1.) a big sell off of Canadian lumber companies in January and February (on negative press due to SLA)

2.) lumber pricing moving higher due to higher demand from housing construction

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