VANCOUVER — Lumber prices are turning around and consumption should pick up next year as the housing market in both the United States and Canada continues to improve, a new report from TD Economics says.
However, the bank warns a “sustained recovery” won’t mean an end to production cuts at mills across Canada in the near term due to the rising loonie and exports taxes for lumber shipped to the key U.S. market.
In a report Tuesday, TD said lumber prices are expected to rise gradually next year, but not return to their long-term average of about US$400 per thousand board feet until 2011.
“Following several months of supply outpacing demand, the lumber market has finally begun to tighten, inventories have fallen to their lowest level in over five years and producers are now able to have more of an influence on prices,” TD Economist Dina Cover wrote.
Cover said prices should dip slightly in the fourth quarter to an average of US$225, before rising to US$280 by the end of 2010.
“While definitely an improvement, prices will still be low compared to historical standards, with this bounce back only bringing prices back to 2007 levels,” Cover wrote.
“The full recovery — when prices return to historical norms — will come in 2011 and beyond.”
Cover said prices “turned the corner” in June, after trading around the US$200 mark for seven months. Prices hit a nine-month high of US$245 in early July.
Mills have been slashing production for several months to try and match supply with demand. Across Canada, capacity has been cut to around 50 per cent this year, leaving thousands without work.