Lumber Sellers Rake in Record Profits on Home Renovation Binge
(Bloomberg) -- Canadian lumber companies that pulled in record earnings are optimistic about next year despite lower wood prices, as they see the wave of home building and renovations continuing.
Norbord Inc., North America’s biggest producer of oriented strand board (OSB), reported record third-quarter revenue while Resolute Forest Products Inc.’s wood segment saw record-high income, boosted by soaring lumber prices and strong demand from home building and do-it-yourself renovations amid the Covid-19 pandemic.
The long-term growth prospects Norbord sees for the wood-chip panels used in walls and floors could keep costs high for home buyers. In October, the National Association of Home Builders said higher wood costs lifted the selling price of an average, new single-family home in the U.S. by $15,841 since mid-April and that one-third of this increase was due to higher prices for the plywood substitute.
Demand was so strong that in August, Norbord brought back some production at its mill in Cordele, Georgia. That brought the company’s total output to 86% of capacity, though it’s still down from 92% in the same period of 2019.
U.S. lumber futures are now nearly 30% below record highs reached in August, when strong demand took the industry by surprise and supplies quickly tightened. But Resolute’s Chief Executive Officer Yves Laflamme expects they will stay around profitable levels.
“We’re optimistic for lumber,” said Laflamme in a phone interview. “The demand is going to stay. Pipeline and inventory is still low as well.”
Despite strong demand, Norbord said Thursday that a wood shortage due to mountain pine beetle and wildfire damage in Western Canada’s province of British Columbia means it will permanently close its OSB mill in the interior B.C. town of 100 Mile House.
Montreal-based Resolute reported record operating income for its wood products in the third quarter at $128 million in sales, up from $113 the prior quarter, due to a 57% increase in the average transaction price.
Despite its optimism, Norbord cautioned in its earnings report that the ongoing pandemic brings “considerable uncertainty in the broader economic environment.”
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