Mild weather extends U.S. construction season, lifts January lumber futures to three-month high in last week of 2011; prices expected to fall early this year as weather turns colder, mills resume production

LOS ANGELES , January 4, 2012 () – Mild weather has extended the U.S. construction season, taking lumber futures towards a three-month high as 2011 drew to a close.

Lumber futures for January delivery reached their highest level since September on Dec. 28 when they closed at US$256.70 per thousand board ft. (mbf) on the Chicago Mercantile Exchange. The nearby contract fell back on Friday to finish 2011 at US$247.10/mbf, down 18% on the year, The Wall Street Journal reported on Jan. 3.

Concern about housing construction in the U.S. and China, as well as the state of the global economy, could hinder advances in lumber prices over the long-term.

Housing data released in December showed U.S. home construction at its highest for 19 months during November, and an increase in building permits. Traders are hoping for more encouraging figures for December as light snowfall and moderate temperatures allowed work to continue at many U.S. building sites.

Jamie Greenough, a broker and market analyst at Global Securities Corp., said there are indications that China has started to buy more lumber again, leading to speculation that overseas demand is about to improve.

At the beginning of last year, futures prices were above $300/mbf and many North American lumber mills increased production in anticipation of strong demand from China. But concerns about the rapid growth of China's housing sector led officials to increase interest rates and the self-imposed pull-back of the economy slowed demand for North American lumber imports, said Matt Layman, publisher of Layman's Lumber Guide.

The earthquake and tsunami that hit Japan in March led to a brief rally in lumber prices, lifting the front-month contract to its 2011 peak of $323.80/mbf.

But the expected surge in lumber demand as Japan rebuilt did not materialize, and by April, supplies of lumber were piling up at the ports, causing lumber prices to drop. At the same time, early season buying by building companies was slower than expected, taking lumber futures prices to a low of $209.70/mbf in May. For the rest of the year, prices remained within a $210-$270 range.

In 2012, the stronger dollar is expected to suppress lumber prices, and demand from China will continue to play an important role in determining price levels. In the early part of the year, colder weather is expected to combine with the resumption of production after year-end curtailments to push prices lower.

The primary source of this article is The Wall Street Journal, New York, on Jan. 3, 2011.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.