ZT "Time for growth in lumber sector"

wnd4

by Don & Jon Vialoux
http://www.financialpost.com/mon ... /5710729/story.html

Canadian lumber stocks such as Canfor Corp. (CFP/TSX), West Fraser Timber Co. Ltd. (WFT/TSX) and International Forest Products Ltd. (IFP.A/ TSX) have a period of seasonal strength from mid-October to the end of April. Average return per period during the past 14 periods was 22% for Canfor and 17.5% for West Fraser. Traditionally, lumber and lumber stocks move higher during the period when lumber distributors and construction companies order lumber for the spring homebuilding and construction season.

What about this year? Demand for lumber for new U.S. homes remains less than robust, but is showing signs of gradual improvement. Demand by the Canadian homebuilding and construction industries continues to grow steadily. Demand from China and Japan has surged during the past year. Greater exports to Japan have been triggered by reconstruction programs after the tsunami disaster last March. Robust demand for lumber from China slowed this summer when the Chinese government restrained credit to slow inflationary pressures. But a recent improvement in economic trends by China suggests demand for basic materials, including lumber, is improving once again.

The tipoff for the start of seasonal strength this year was technical action by lumber prices last Friday. Lumber gained 8.67% to $242.34 per thousdand board feet. Prices finally started to move higher after repeatedly finding support near $224. Short-term momentum indicators began to recover from oversold levels. Lumber equities responded by moving higher.

Canadian lumber stocks bottomed earlier than usual this year when they bottomed with the stock market in the first week of October. Subsequently, they developed base building patterns. A break above the top of their current trading range will confirm their seasonal strength.

Canfor has traded in a range between $8.80 to $10.34, closing yesterday at $9.90; International Forest has traded between $3.50 to $4.34 ($4); and West Fraser has traded between $34.90 to $44.23 ($42.93). Accumulation closer to the bottom of their trading range is preferred for a seasonal trade lasting until April.