Lumber Prices Near 9-Month High

CHICAGO, IL - U.S. lumber futures rose 5 percent on Tuesday to their highest level in 8-1/2 months following a surge in new U.S. housing starts last month and as mills continued to cut back production. July and September rose by the daily trading limit of $10 per thousand board feet, with July closing limit up at $213.20. September ended $9.20 higher at $228.80.

Prices for lumber futures cannot rise or fall by more than $10 in a day as set by the exchange to limit volatility. Lumber futures, as measured by the spot contract, have risen 26 percent this year, but are still below the high of $312.30 set in August 2007. 'You have less production on the market and better housing,' said Robin Cross, a broker with FC Stone LLC.

U.S. housing starts jumped 17.2 percent in May to a seasonally adjusted annual rate of 532,000 units, the biggest rise in three months, the Commerce Department said. The department said ground breaking for multifamily units surged 61.7 percent, after falling 49.4 percent in April.

'There is hope that we are moving towards the end of the recession, but we will caution that once we get to that point any recovery is going to be very muted. It (economy) will not come from the recession with all guns blazing,' said Paul Dales, an economist at Capital Economics in Toronto.

Lumber futures were also supported by news of mills cutting back production due to poor prices in the cash markets. West Fraser Timber Co said on Monday it would temporarily idle three of its British Columbia sawmills.

The Houston, 100 Mile and Chasm sawmills will be down for at least two weeks, starting at the end of June, although the actual restart time will depend on market conditions, the company said.

Cross of FC Stone cautioned that any significant increase in lumber prices could prompt mills to restart production before any sustained growth in the housing sector.

'The recent production cutbacks may result in cash (prices) rising $20 with mills back in a profitable position and you'll see production increase,' he said. 'You went from a severe bear market and futures rallied $80 on housing that had very little change as far as (housing) starts and permits were concerned,' he said of recent gains.