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Feb 24, 2021

'Bonanza' in lumber prices unlikely to end soon: Resolute CFO

Lumber prices encouraging for short-to-medium term: Incoming Resolute Forest CEO

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Resolute Forest Products Inc. Chief Financial Officer Remi Lalonde doesn’t see the frenzy in lumber prices ending anytime soon.

Lalonde said new home construction spurred largely in part by the pandemic as well as increased renovation intentions should support lumber prices for the near future.

“One of the things that was very peculiar about 2020 is the impact that the pandemic had on our business. If we roll back the tape to March and April of last year, few people expected the bonanza that we saw in the second half of the year for lumber prices, driven by strong housing starts,” he said in an interview on Wednesday. “So, that was very good for us.”

Lumber prices have rallied above US$1,000 per thousand board feet to hit a new record high in February. That’s up more than 50 per cent from the pre-pandemic high, set during the frenzy of the 2018 U.S. homebuilding season. Shares of lumber producers have responded in kind, with shares of Resolute up 217 per cent over the course of the last year.

In spite of home improvement retailers like Lowe’s Companies Inc. and The Home Depot Inc. warning that it’s uncertain whether renovation buying will continue at the current pace, Lalonde said tight supply conditions should keep a floor beneath lumber prices for some time.

“We certainly see that in the short-term and the medium-term, it’s pretty encouraging for the conditions for lumber markets and lumber prices, but ultimately the questions are going to be around additional capacity coming online,” he said. 

“There’s also some imports coming in from Europe, and whether there’s going to be an economic stall is another one of the factors we have to keep in mind.”

While lumber has emerged as the key profit driver for Resolute, the company has faced structural challenges in its newsprint division as demand from legacy media operators dries up. Lalonde said the company has made an effort to reduce its reliance on newsprint and is focusing its efforts on more profitable segments.

“The newsprint market has contracted pretty significantly. If you look at the past decade, demand is down probably 75 per cent or so,” he said. 

“So that’s forced companies like us to adapt to those conditions and what we’ve done is reduced out operating footprint over the years so that newsprint is a much smaller piece of the pie today than it was in the past."