by Julia Groß, Euro am Sonntag
DEvents last spring appeared to be an extreme outlier: when North American lumber futures rose to around $1,700 per 1,000 board feet (2.36 cubic meters) in May, that was the highest level in at least 40 years and more than tripled the price level that market participants were used to before Corona. But after a quick correction to normal levels, the lumber price climbed back above the $1,000 mark in December, and an end to the price explosion is not yet in sight.
As in the previous year, demand is stronger than expected, while supply is not keeping pace, mainly due to infrastructure and transport limitations. The desire of many Americans for more space to work from home and to renovate their homes is exacerbating a problem that has existed for years: “Ultimately not enough has been built since the financial crisis of 2008. An enormous supply deficit has built up,” says Christoph Butz, fund manager of the Pictet Timber (ISIN: LU 034 055 777 5). In addition, when building a house, the cost of wood is not so great that the high prices would depress demand.
High margins for sawmills
Lumber producers will benefit, and sawmills will benefit even more due to specific regional conditions in the southeastern United States. Round wood, the raw material for the sawmills, still costs very little there, while the further processed beams and boards can be resold at much higher prices.
The producers of pulp, from which hygiene articles are made, for example, also experience a positive environment. Demand from emerging markets like China is growing steadily by four to five percent a year. After a price correction there, prices are now picking up again – in Europe the upward trend remained intact anyway. Packaging manufacturers, who mainly process recycled material, are experiencing strong demand due to the boom in online trading.
Accordingly, Butz, whose portfolio is up 26 percent over the past 12 months, expects another positive year for the sector. “The underlying markets have developed well, green construction is on the rise and the macro environment is also favorable for the industry because companies are somewhat more cyclical and less sensitive to interest rates,” he summarizes. He prefers integrated companies that cover several areas of the value chain from forest to end product.
A cheaper alternative for investors in terms of fees is the iShares Timber & Forestry ETF (ISIN: IE 00B 27Y CF7 4). Over the past three years, however, its return of 56 percent has lagged significantly behind Pictet’s actively managed portfolio (72 percent).
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Image sources: iStockphoto, Maikid/iStockphoto
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