October 12, 2015 / 9:16 PM / 4 years ago

U.S. lumber futures surge 4 pct as trade deal with Canada expires

CHICAGO, Oct 12 (Reuters) - U.S. lumber futures jumped 4 percent to their highest levels in a month on Monday as inventories of the building material ran low and a nearly decade-old trade deal with Canada expired, traders and analysts said.

Investors and wood users who bet on lower lumber prices following the expiration this week of the 2006 Softwood Lumber Agreement between the United States and Canada have been covering their short positions - in both physical supplies and futures.

The trade deal, known as SLA, taxed lumber exported from western Canada into the United States. The exports were taxed at escalating rates as cash timber prices declined, making the Canadian wood more competitive with pricier supplies produced by U.S. saw mills.

As the deal neared its expiration and the Canadian dollar lost value against the greenback, traders bet that prices would decline as cheaper wood flooded across the border in what one analyst called a “wall of wood.”

It is too early to say whether that influx of lumber will materialize. However, U.S. imports of Canadian timber in October were on pace to be the smallest monthly volumes in at least two years, Canadian government data showed.

“The marketplace expected a wall of wood, but my (clients) are tight on everything,” said Robin Cross, a lumber broker for INTL FCStone in Chicago. “Funds all sold knowing the deal was expiring, and now they’re covering.”

Lumber futures on the Chicago Mercantile Exchange <0#LB:> have now posted gains for six sessions in a row, and have surged more than 18 percent since touching a roughly four-year low on Sept. 28.

Lumber for November delivery on Monday rose by the daily price limit of $10 per thousand board feet, to $254.40 per tbf.

Another analyst, who declined to be quoted by name due to company policy, said wood prices could remain elevated for another month, before trade between the neighboring countries normalized.

“Purely and simply the industry misjudged their level of activity and how much wood they would need,” the analyst, based in the U.S. Pacific Northwest, said. (Reporting by Michael Hirtzer, editing by G Crosse)

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