B.C. flooding will result in products not getting to market and higher prices: Economist
Washed out roads and blocked rail tracks in Canada’s westernmost province are fueling a lumber price rally as key supplies risk being stuck just as home builders start piling up materials.
Lumber futures in Chicago jumped 6.3 per cent to US$757 per 1,000 board feet on Thursday, the highest since Oct. 25, after a once-in-a-century storm forced British Columbia to declare a state of emergency. The extreme deluge washed away and blocked parts of the province’s main highways, closed the tracks of Canada’s two major railways, flooded many areas and forced evacuations.
This has left Canada’s largest port in Vancouver largely stranded without access to trucks and rail cars to move goods such as grain and lumber in and out of the region. Roughly 14 per cent of North America’s lumber is produced in British Columbia.
“The mills are feeding into this and using it to firm up pricing, catching traders and forcing them to chase prices higher,” said Greg Kuta, chief executive officer of Westline Capital Strategies, which specializes in lumber-trading strategies.
It’s the second time in less than five months that rail tracks in British Columbia, a major gateway to Asian markets, have been damaged by extreme weather. Wildfires and a record heat wave choked the region in the summer.
The threat of reduced supplies comes at a time of year when lumber prices typically start to rise again, as builders start to accumulate the materials they will need in the peak spring season.
“The market started the week strong, but now the rail issue has turned it into a frenzy,” said Brian Leonard, an analyst with RCM Alternatives in Chicago.
On Thursday, the B.C. government closed all forest service roads in a region around Chilliwack, which is roughly 190 km (118 miles) east of Vancouver. Meanwhile, crews are working to clear highways after mud slides made them impassable, and railways repaired track damage. B.C. lumber companies may have the option to transport supplies east through neighboring Alberta, depending on their location.
Shares of Resolute Forest Products Inc., which operates in Eastern Canada, rallied sharply on Thursday.