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Backlog Puts the Wood to Lumber Prices

04/20/2014 | 08:55pm US/Eastern
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By Kelsey Gee 

Lumber prices are near the lowest levels in seven months, after a cold, wet start to spring has delayed construction and kept potential buyers away from the housing market.

Now, market watchers are waiting for the inevitable spring thaw to shake loose lumber that has been building up in warehouses and at sawmills across North America, while searching for signs of demand from U.S. home builders.

"Last year everyone was irrationally exuberant about the spring and about how fast the housing recovery would take hold," said Steven Chercover, an analyst with D.A. Davidson, an investment-management firm in Portland, Ore. "This year, we were optimistic, but had the worst winter in decades" in parts of the Midwest and East Coast.

The winter halted construction and caused transportation bottlenecks, with heavy snows preventing trains and trucks from moving not only lumber but other commodities as well. As the snow melted, competition from grain and energy shippers left a lot of lumber stuck at mills and warehouses. That left the Canadian National Railway Co. to issue a rare embargo notice to wood and pulp producers in March to say it would stop moving lumber products until the backlog was cleared.

"Whenever the perception is out there that there's lumber piled up like there is now, the psychology feeds into a real bearish market," said Paul Harder, a lumber trader with Dakeryn Industries, a wholesale distributor in North Vancouver, British Columbia

Lumber traded on the CME fell to as low as $323.50 per 1,000 board feet last week, the lowest for any front-month contract since September and ended down 1.1% on the week.

Temperatures again dropped below during the week, with some states receiving snow, continuing to damp optimism about new construction and lumber.

Meanwhile, a spate of housing indicators that have shown a more-sluggish-than-expected appetite for building materials at the start of the year also has sent jitters through the market. The number of new homes under construction, known as housing starts, rose 2.8% in March to a seasonally adjusted annual pace of 946,000, according to the Commerce Department, below market expectations of 965,000.

Still, some analysts are confident the market will recover.

Daryl Swetlishoff, head of research at Raymond James in Vancouver, noted a strike by Canadian truckers has ended, easing another transportation chokepoint, and said he expects the North American market will absorb the lumber stockpiles.

"Wood is flying again, [and] demand should be healthy going forward," Mr. Swetlishoff said.

Write to Kelsey Gee at kelsey.gee@wsj.com

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