Thursday, December 3, 2009

Lumber Stocks Set For Explosive Move Up As China Moves to Use Lumber: The Oil of Next Decade

BNN had a series on the potential form explosive growth in lumber shipments to China as Shanghai moves to allow lumber in its contruction. Shanghai adopted a building code for wood- frame construction amid a push to build new housing. Lumber is low cost and resists earthquakes quite well.

RBC Capital markets'a David Watts said that lumber to become next decades's oil. He was on BNN, as was lumber's producer's CEO, Jim Shepard.

Watch video 1 (Canfor's CEO Jim Shepard explain how they donated after the Shezuan earthquake, and now they are having meetings with China's ministers.)

Watch video 2 (RBC Capital Markets)


RBC alwo warns that, as it happened with oil, the move will likely boost the Canadian dollar.

“You’ve got the potential for lumber to create another bullish situation for the Canadian dollar,” David Watt, senior currency strategist in Toronto at RBC, Canada’s biggest lender, said yesterday in an interview. “You start balancing things out, and parity becomes a relatively easy call for the Canadian dollar out the next few years.”

“lumber could be the oil of the next decade,”. Lumber accounts for 14% of the Bank of Canada’s Commodity Price Index, the largest single component after crude at 21 percent.

Shanghai, China’s most populous city with more than 20 million people, adopted a new wood-frame building code in September that is “a major step forward in the growing demand for Canadian wood products in China,” according to a Nov. 9 statement on Natural Resources Canada’s Web site. Prices of lumber futures for January delivery jumped 16 percent since the statement was issued.

$132B For Low-Income Housing

According to Bloomberg, China plans to invest 900 billion yuan ($132 billion) in affordable housing. Shanghai will increase the supply of land for property development and speed up construction of housing for low-income families, Mayor Han Zheng said in an Aug. 5 interview.
"The probability that the Canadian currency will trade at C$1 per U.S. dollar in 12 months is 78 percent, according to implied volatility from options trading monitored by Bloomberg. RBC predicts the currency will strengthen to C$1.01 by the middle of next year. The median forecast of 38 economists in a Bloomberg News survey is for the loonie to appreciate to C$1.04 in that period".

Canfor's stock is clearly out of favor with investors as they focus on the US construction market, as opposed to China. Take a look at the volumes:

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