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Lumber Prices Soar As British Columbia Floods Curb Shipments

Tyler Durden's Photo
by Tyler Durden
Wednesday, Dec 01, 2021 - 02:25 AM

Lumber prices surged to June highs as Canada's largest forestry company curbed shipments due to supply chain disruptions after severe flooding in British Columbia.

West Fraser Timber Co. Ltd. said weekly lumber shipments from Canada's westernmost province fell approximately 25%-30% in the second half of November following floods. Pulp shipments to the port of Vancouver were down 20%. 

"While West Fraser is utilizing alternative transportation routes and methods to the extent they are available to continue servicing customers, the magnitude and duration of the impact from current weather events remains uncertain.

Therefore, West Fraser has reduced operating schedules at multiple western Canadian locations and will continue to make such adjustments as necessary in order to manage inventory levels, raw material supplies and our integrated fibre supply chain.

At the current time, it is not possible to estimate when full transportation services will resume or when the backlogs resulting from the interruptions will be cleared," the company said in a statement

Uncertainty about lumber supply spooked lumber futures trading in Chicago on Tuesday, up nearly 4% to $824.50 per 1,000 board feet, the highest price since late June. Prices have jumped 30% in the last two weeks. 

Around Nov. 14, an atmospheric river dumped torrential rains across southern parts of British Columbia. A series of floods severely damaged infrastructure, including roads, bridges, and train tracks. Moving lumber from sawmills to ports generally occurs on trucks and or trains. With infrastructure damaged, as shown below, it appears West Fraser has been partially choked off in accessing ports. 

Greg Kuta, the founder of Westline Capital Strategies Inc., which specializes in lumber trading, told Bloomberg that "there's no point in producing more than you can ship right now, especially knowing lumber is at the bottom of the pecking order with rail car allocation."

There's no timetable on when West Fraser's supply chain will go back to normal. Fixing bridges and roads is not an overnight process. It could take weeks, if not months, to resolve the logistical nightmare that some blame on climate change, and others point to La Nina. As for now, a bullish thesis could be developing for lumber as supply woes mount. 

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