The forest industry is experiencing a boost right now. Lumber prices are high and the sawmills scream for timber. In Sweden, the forest owners are involved in chicken races with the industry to get as much as possible for their timber. Managers and finance analysts claim there are no clouds on the clear blue sky. The market is hot, but for how long?


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will the boost in forest industry go on

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How long will the boost in the forest industry go on?

Suddenly the finance media (here in Sweden anyway) show interest in the forest in a positive sense. Well, in the forest industry, not so much in the forest itself. One year ago, the forest industry analysts predicted a decrease in the market for sawn timber and paper products due to the pandemic. It turned out they were wrong.

The rich parts of the World made sure to “print” fresh money to save themselves from the effects of pandemic. In the meantime, companies closed temporary, the spring was coming, and the people had to stay home as borders were closed and to keep distance to others. And do what? Why not make a new porch to the house? Or restore the house? Or even build a new house? The DIY warehouses were soon emptied, and the sawmills had to give gas to fill them up again.


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Nothing lasts forever

One year later, now, the same market analysts working for the forest industry say that they can´t see any signs that the market is slowing down or will do so in the coming six months. Knowing those analysts have been wrong before (see above), Fredrik at the sister site iSkogen.se made his own analysis of the current situation.

Being aware of that it´s always easier to analyze things from the (out-) side, and that it won´t hurt so much if you are wrong, he decided to look at the Nasdaq index for lumber. This index refers to options and not to actual lumber prices, but it most likely follows the lumber prices.

The index shows that the lumber prices, especially in the US, have had an explosive increase during the last few years. The increase has been over 100 %.

Friday the 7th of May 2021 the options peaked at $1.670 per 1.000 board feet on Nasdaq. 10 days later, the same options were traded for $1.327 / 1.000 board feet. That is a decrease of over 20 % in 10 days. Maybe one shouldn´t worry too much about that?

will the boost in forest industry go on

The development of “Lumber” at Nasdaq.
Photo: Nasdaq.com

Fredrik went on to have a look at Canfor in Canada. They are interesting for us here in Sweden as they own one of the major sawmilling companies here, the Vida Group. On the Canadian stock exchange, Canfor was traded for 34,43 CAD per share on the 10th of May. On the 18th of May, the value was 29,72 CAD, a decrease of 14 %.

will the boost in forest industry go on

Development of the Canfor share in May 2021.
Source: Google.se

Is it a sign (two signs)?

All markets go up and down. The above-mentioned changes doesn´t have to mean anything. But still …

The World is opening after the pandemic. The people have their new porches, houses and whatever they did with the lumber last year. Now they can go back to their normal habits and for many that´s travelling. So, what was spent on lumber last year will most likely be spent elsewhere this year meaning that the demand for lumber will go down. Also, the lumber prices may never have been higher than now which should prevent some from building a new porch, or at least make them wait until the prices come down again.

To be quite honest it seems logical to me that we should have reached or are close to the turning point when it all starts to go down again. Of course, the development of the pandemic and the effects of that is hard to predict. We will simply have to wait and see.

Even if the above scenario turns out to be true, we can always hope that the lowest price level for lumber has been raised during the price race the last years. In any case let´s hope for a soft landing when it turns downward, now or later. If you are a forest owner, make sure to sell your timber at highest possible price. It may be now or never …

 

This is a summary of an article at iSkogen.se signed Fredrik Reuter.