The Lumber Sector Recently Entered Into a Period of Seasonal Strength

The lumber sector recently entered into a period of seasonal strength. What are prospects this year? Canadian lumber stocks such as Canfor, West Fraser Timber, and International Forest Products have a period of seasonal strength from mid-october to the end of april. Average return per period during the past 14 periods was 22.0 % for Canfor ($9.89) and 17.5 % for West fraser timber ($42.50). Traditionally, lumber and lumber stocks move higher during the period when lumber distributors and construction companies order lumber for the spring home building and construction season. What about this year? Demand for lumber for new homes in the u. S. Remains less than robust, but is showing signs of gradual improvement. Demand by the Canadian home building and construction industries continues to grow steadily. Demand from China and Japan has surged during the past year. Greater exports to Japan have been triggered by reconstruction programs following the tsunami disaster last March. Robust demand for lumber from China slowed this summer when the Chinese government re-strained credit to slow inflationary pressures. However, a recent improvement in economic trends in China suggest that demand for basic materials, including lumber, will soon grow again. The tip off for the start of seasonal strength this year was technical action by lumber prices last friday. Lumber gained 8.67 % to $242.34 per tBf. Prices finally started to move higher after repeatedly finding support near $224. Short term momentum indicators began to recover from oversold levels. Lumber equities responded by moving higher. Canadian lumber stocks bottomed earlier than usual this year when they bottomed with the stock market in the first week of octo-ber. Subsequently, they developed base building patterns. A break above the top of their current trading range will confirm their seasonal strength. Canfor has traded in a range between $8.80 to $10.34, international forest Products has traded between $3.50 to $4.34, and West fraser timber has traded between $34.90 to $44.23. Accumulation closer to the bottom of their trading range is preferred for a seasonal trade lasting until april. Don and Jon Vialoux are the auth-ors of free daily reports on equity markets, sectors, commodities and Exchange traded funds. They also are research analysts for Horizons investment Management inc. All of the views expressed herein are their personal views although they may be reflected in positions or transactions in the various client portfolios man-aged by Horizons investment. Source: montrealgazette.com