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While some commodities have successfully halted last week’s post China-crackdown rout, such as copper and Iron Ore…

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… others have been less lucky, most notably lumber which until last week had become the posted child of the current inflationary euphoria when something snapped, and after six consecutive days of declines, Lumber is now in a (Lum)bear market, down 23% in one week from its May 10 record high of $1,733.50 when it almost caught up to an ounce of gold, but not quite.

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And if Capital Economics’ lumber price forecast is correct, it’s about to get much worse.

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Alternatively, this could be just the pause that refreshes, because as the WSJ reported this morning, even though North America’s sawmills can’t keep up with demand – which has sent wood prices soaring – don’t expect new mills to start popping up though.

Why? Because “executives in the cyclical business of sawing logs into lumber said they are content to rake in cash while lumber prices are sky-high and aren’t racing out to build new mills, which can cost hundreds of millions dollars and take two years to build from the ground up. In doing so they are breaking with conventional wisdom in the commodities business, which states that the cure for high prices is high prices. Usually when prices for raw materials rise, refineries and smelters ramp up, farmers plant larger crops, wells are drilled, mines dug. New supplies flood into the market and prices retreat.”

And while traditionally lack of demand would act as a natural brake to soaring prices, this time is different:

Home buyers and do-it-yourself-ers, who are paying more than four times the normal price for lumber, would like for that to happen. But they are flush thanks to historically low borrowing costs, rising home values and government stimulus. Demand has been unbowed by escalating prices.

Yet even if this is the beginning of the end for lumber, don’t cry for the lumber longs: on an indexes basis, Lumber is generously outperforming even such stellar assets as bitcoin.

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