Lumber futures rose Monday to a six-year high, extending a 2012 rally that is one of the biggest among commodities on mounting signs of tighter supplies as U.S. home construction rebounds.
Prices have surged 37 percent this year, more than any of the 24 commodities tracked by the Standard & Poor's GSCI Spot Index. Lumber has more than doubled since January 2009, when the recession and a collapse in the U.S. housing market left a glut of wood. Since then, output plunged in Russia while China boosted imports, limiting supplies in North America just as demand rebounds, according to International Wood Markets Group.
Housing starts that in October reached an annual rate of 894,000, the highest since July 2008, may exceed 1 million a month by the end of 2013, Michelle Meyer, a New York-based senior economist at Bank of America, the second-biggest U.S. lender by assets, said earlier this month. U.S. building permits, a proxy for future construction, reached a four-year high in September, government data show.
"Housing inventories are coming down, and housing prices are coming up in major markets in the U.S.," Hakan Ekstrom, president at Wood Resource International in Seattle, said. "That's an indication that demand is higher than supply and that's likely to continue next year."
Lumber futures for January delivery gained 0.9 percent to settle at $358.20 per 1,000 board feet at 1:05 p.m. Monday on the Chicago Mercantile Exchange, after touching $360.80, the highest since April 2006.
$400 by May predicted
Recovery from Hurricane Sandy, which killed 37 people when it struck the East Coast in October, causing $36.9 billion in damage in New Jersey alone, also has helped improve lumber demand and prices, James Stellakis, the founder at Technical Alpha Inc., a researcher based in Greenwich, Conn., said in a telephone interview.
"The combination of Sandy renovations and the reports about housing ticking up" is helping prices, said Stellakis, who forecast lumber will reach $400 by May. "People are getting ready for the spring housing season. They're getting their supplies bought to secure what they think they'll need before the building season in March or April."
Log exports are now 40 percent below their 2007 peak and have continued to drop this year, while the mountain pine beetle epidemic is killing trees in British Columbia, according to International Wood Markets. U.S. lumber supply will be "overwhelmed" in the next five years, sending prices to a record in 2014, the Vancouver, B.C.-based researcher said in a Dec. 10 report.
Companies such as Vancouver-based Canfor Corp. are benefiting from the lumber rally, Technical Alpha's Stellakis said. Canfor shares through Dec. 14 jumped 44 percent this year. Wayne Guthrie, the company's senior vice president of sales and marketing, said in September that Canfor, the second-largest North American softwood producer, was "excited" about the increase in "high-value" shipments of lumber to China.
As the economy in the U.S. improves, consumers will pay more for houses, Wood Resource's Ekstrom said. That will help offset the increased cost of lumber for homebuilders and board sellers, he said. The S&P/Case-Shiller Composite Index of home prices in 20 cities is up 7 percent this year.
"If people believe there will be higher prices in housing in 2014, they think, 'maybe I should look at buying in 2013 instead,'" said Ekstrom, who correctly forecast prices would rise this year. "Interest rates might not go much lower than where we are, so the earlier they can buy a house, the better, because it's not going to get much better from a buyer's perspective."