Interest Rate Roundup

Thursday, September 28, 2006

lumber update

Just FYI -- I mentioned in an earlier post that lumber prices have been tanking. My take was that the drop stemmed from the ongoing downturn in housing. When you have fewer home sales, you get fewer housing starts. That reduces demand from builders for lumber products -- wall components, crown molding, etc.

Well, lumber futures prices are really starting to tank now -- down just over 1% on 9/26, 2.1% on 9/27, and 3.4% today, according to Bloomberg. Here's a chart of the continuous contract, which shows we're now trading at lows not seen since May 2003.

HOWEVER, a Bloomberg story today attributes some of the recent decline to speculation that Canadian suppliers are trying to send more wood our way ahead of Oct. 1, when a lumber trade agreement between the U.S. and Canada is scheduled to take effect. Without getting into the nitty gritty, it seems the agreement gives Canadian producers an incentive to ship more our way. Here's some background on the accord from several months ago when it was first signed.

Just thought I'd share this latest news in case the LB futures activity is throwing off a "false" housing signal. I doubt it is, though, given the ongoing fundamental data showing weak sales, weak production, and slumping purchase mortgage activity.


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