Investors should always be on the lookout for a long-term financial trend, take a position early, and then ride it for all it’s worth.
Such an opportunity could now be emerging in lumber, a long depressed commodity that could be on the cusp of better things. RBC Capital Markets’ forestry analyst Paul Quinn believes that lumber is about to enter a “supercycle,” or a lengthy period of buoyant prices.
He made the forecast in a recent report on the bullish long-term prospects of West Fraser Timber Co. Ltd., the West Coast-based forestry giant that is North America’s largest lumber producer.
Mr. Quinn believes the U.S. housing recovery will be vibrant enough by the end of next year to put a strong bid in the market for lumber. Another bullish factor is that China has entered the demand equation as a big buyer of North American wood. Although it’s now working down high stockpiles, this is temporary and the country will soon need to replenish holdings.
On the supply side, there are other trends that could drive lumber prices higher. Mountain pine beetles have chewed through British Columbia’s forests. While this is an environmental calamity, the upside is a reduction in the supply of high quality wood. Governments in Eastern Canada are reducing the allowable cuts, another plus.