Lumber Tops Commodity Futures as China Demand May Gain

Lumber futures that surged more than any other commodity in February may extend a rally to a 10-month high as China boosts imports and the U.S. housing recovers, researcher Wood Resources International LLC said.

Prices have gained 11 percent since the end of January, the most among 35 raw materials tracked by the Rogers International Commodity Index. Lumber may reach $300 per 1,000 board feet by July on the Chicago Mercantile Exchange, up 9 percent from today’s close of $275.20 and the highest since April 6, Wood Resources said.

West Fraser Timber Co., North America’s largest producer, said exports to China “picked up substantially” in the first quarter from the fourth quarter. Shipments climbed to a record in 2011, government data show. U.S. housing starts rose 1.5 percent last month from December to a 699,000 annual rate, the most for a January since 2008 and a sign that residential real estate is stabilizing, the Commerce Department said Feb. 16.

“The general trend should be upward, with more optimism in the market that housing starts should slowly start to increase,” Hakan Ekstrom, the president of Wood Resources, said by telephone from Bothell, Washington. “The west coast of Canada and the U.S. also have China probably starting to buy more lumber again.”

Economic Growth

Lumber has rallied as improved economic growth signaled increased demand for commodities. The Rogers International Commodity Total Return Index, which includes everything from gold to rice to rubber, rose 8.2 percent this year as of yesterday. Open interest across 24 commodities tracked by Bloomberg surged to 10.856 million contracts on Feb. 23, the highest since April.

Last year, U.S. exports of forest products ranging from oak boards to toothpicks totaled $7.752 billion, up 13 percent from 2010 and the most on records since 1978, according to the U.S. Department of Agriculture. Shipments to China surged 59 percent to $1.952 billion, the highest ever, the data show.

Through November, Canadian sawmills shipped 50.257 million cubic meters of lumber in 2011, 3.2 percent more than in the same period a year earlier, Statistics Canada said in a Jan. 25 report. North American shipments of logs and lumber to China climbed to a record $2.5 billion last year, and will be higher this year, Ekstrom said.

China Expansion

The world economy may expand by 3.3 percent this year, less than a September forecast of 4 percent, the International Monetary Fund said Jan 24. China may expand at an 8.2 percent pace, while the U.S. economy grows 1.8 percent.

Chinese efforts to slow inflation may still limit lumber’s gains. Premier Wen Jiabao said in January that the government will maintain curbs on the property market to bring prices down to a reasonable level. In January, China’s average home prices were down 0.2 percent from December, while still 1.7 percent higher than a year earlier, SouFun Holdings Ltd. said Feb. 1.

China plans to offer at least 152.6 billion yuan of subsidies for affordable housing in 2012, the government said Feb. 23.

“The massive Chinese social-housing program, which will be affordable condos or very small apartments for low-income families, is going to mostly offset declines in the private sector,” Patricia Mohr, an economist and commodity specialist at ScotiaBank Group in Toronto, said in a telephone interview.

A measure tracking property stocks on the Shanghai Composite Index climbed 17 percent this year through yesterday, exceeding the benchmark gauge’s 11 percent advance.

“Our shipments to China slowed somewhat” during the fourth quarter “due to high lumber inventories there,” Henry Ketcham, the chief executive officer of Vancouver-based West Fraser, said on a Feb. 17 conference call. “Shipments have picked up substantially in the new year.”

U.S. Housing

More Americans than forecast signed contracts to buy previously owned homes in January, indicating the industry that sparked the latest recession is improving, the National Association of Realtors said Feb. 27. Still, an S&P/Case-Shiller index showed yesterday that property values in 20 U.S. cities fell more than forecast in December.

“We’ve had a mild winter, so no problems with construction, weather-wise,” Jamie Greenough, a broker at Global Securities Corp., said by telephone from Vancouver. “The export market is still robust.”

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