U.S. lumber prices near bottom, rebound a ways away

CHICAGO (Reuters) - Slumping U.S. lumber futures, down 27 percent from last year, may be near a bottom as prices have stayed near the highest level in a month despite grim U.S. housing data this week.

But more mills will probably have to close and U.S. home sales will have to pick up substantially before the lumber market can stage a robust recovery.

The market, which trades in grades like fir and spruce from the United States and the Canadian provinces of British Columbia and Alberta, is "bottoming right now, but how long it's going to take I have no idea. It could be many months," said Brian Leonard, lumber analyst with Rosenthal Collins.

"Everybody that I surveyed said they are not going to do any (home) building this year. They are just going to do minor projects here and there. They want their inventory to go down. There is just too much new home inventory out there," he said, referring to mills and his sources in the lumber industry.

He said that, despite a decrease in home prices by about 30 percent, inventory remained high.

Chicago Mercantile Exchange lumber futures were at $177.80 per thousand board feet on Wednesday, around a one-month high but well off the year-ago level of $245.

Home Depot Inc (HD.N), the No. 1 home improvement chain, reported higher-than-expected quarterly earnings on Tuesday as massive cost cuts offset weak sales.

On Monday, Lowe's Cos Inc (LOW.N), the second largest U.S. home improvement retailer, posted better-than-expected quarterly profit as it saw some strength in outdoor projects like gardens and lawns in the spring, even as consumers still shunned big home renovations.

And in a stark reminder of the ill health of the housing sector, Commerce Department data showed on Tuesday that U.S. housing starts and permits fell to record lows in April, weighed down by a slump in multifamily units.

The department said housing starts fell 12.8 percent to an annual rate of 458,000 units last month, the lowest since records began in January 1959.

SIGNIFICANT CUTS TO PRODUCTION

Lumber industry sources said there has been significant curtailment in lumber production by mills in the past few months, but that the cutbacks may not be enough.

"I think you are going to see more mills close (temporarily)," said Ashley Boeckholt, lumber analyst with Bloch Lumber. "There is already a few mills telling me they are shutting down after Memorial Day (on Monday) -- there continues to be slow, steady curtailment closure announcements."

But tentative signs that the economic slowdown in the United States is easing, steady gains in the stock market and the flow of investment money into commodities markets was giving some in the lumber industry reason to be optimistic.

"We're going through the bottoming process but I think it's going to take a long time," said Curt Cunningham, president of Pacific Futures Trading. "You're up 2.8 percent on single-family starts but from historically the lowest levels ever recorded."

One of the world's largest paper makers, which also owns sawmills, AbitibiBowater Inc (ABWTQ.PK), is filing for bankruptcy in the United States and Canada.

"Given where the exchange rate is at, I would think you would have to see additional closures. I don't think supply and demand are in balance yet, and some of the temporary closures announced earlier in the year, those mills have actually started to come back on line," Cunningham said.

"With the demand (for lumber) as poor as it is I don't think the supply side has been cut enough to balance things out and start to see any sustainable improvement in prices," Cunningham added.

(Reporting by Jerry Bieszk; Editing by K.T. Arasu and David Gregorio)