Lumber prices hit 5-year low, cutbacks seen

By Bob Burgdorfer - Analysis

CHICAGO (Reuters) - North American lumber prices fell to a five-year low on Thursday as the slow down in home building has wood piling up at lumber mills, industry experts said.

As a result, the big lumber mills in Canada, which ship much of their production to the United States, are losing money and will likely cut production, they said.

At the Chicago Mercantile Exchange, which prices North American lumber, lumber futures for January delivery fell to $208.70 per thousand board feet, the lowest since November 2002.

In addition, Canada mills must pay a 15 percent duty to ship lumber into the United States. That puts the price at those mills at about $175, said Gerry Van Leeuwen, vice president at International Wood Markets Group, a Vancouver-based lumber consulting firm.

"There is just no way anyone is making any money. There are a lot of mills losing a lot of money at that price, so there has to be more curtailments," he said.

North American lumber mills are just now restarting production after being down for the Christmas and New Year's holidays. But many of those mills have shut down again because of the low prices and poor demand.

LUMBER PRICES MAY BE NEAR BOTTOM

If lumber mills cut production, as expected, that should prevent lumber prices from falling much further.

"I can't see it staying down at this level," Paul Quinn, a paper and forest products analyst with Vancouver-based Salman Partners, said of lumber prices. "There is no Canadian mill that is making money so you will see additional downtime."

While lumber supplies are currently burdensome, Quinn said it is the lack of demand that is hurting the market rather than excess supply.

The pace of home building is down about 50 percent from a year ago, while lumber production is down about 20 percent, said International Wood's Van Leeuwen.

On Tuesday, a U.S. Federal Reserve official said the U.S. housing market is headed for its worst performance in 50 years, and the president of Americana Mortgage Group, a mortgage broker, said this week the housing market has yet to hit bottom.

(Editing by Christian Wiessner)