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VANCOUVER - The head of West Fraser Timber warned Tuesday that demand for lumber can be volatile through the winter as the recovery in the U.S. housing market continues to be slow.
Lumber prices were up in the third quarter, helping boost the Vancouver-based company's revenue and profit, but West Fraser CEO Ted Seraphim told analysts that he was wary.
"Lumber demand has been relatively strong in October," he said. "Nevertheless, we are still early in the recovery of the housing market and as such, we should expect some volatility in lumber and panel markets over the winter."
Last week, West Fraser announced a plan to close its mill in Houston, B.C., due to the widespread damage caused by the mountain pine beetle infestation. The move resulted in 225 job losses.
The closure is part of a larger plan including a timber tenure swap with Canfor to help provide some security to its mills in Quesnel, Smithers and Fraser Lake, B.C.
Seraphim said the company would do its best to help the workers in Houston find work at other West Fraser operations and provide some help to relocate to the new jobs before the mill is shut down likely in May.
"It is a decision that we had to make, but I've got to tell you we don't feel very good about it," he said.
Canadian lumber producers were hit hard when U.S. homebuilders slowed construction to a crawl during the economic downturn, which was deeper and longer south of the border than in Canada.
However, the U.S. housing market has shown some life recently. The U.S. reported last month that builders started work in August on the most single-family homes in six months.
Overall, U.S. builders broke ground in August on houses and apartments at an annual rate of 891,000, up from a rate of 883,000 from July. Housing starts in August were 19 per cent higher than a year earlier.
West Fraser, which has lumber, wood panel, pulp and newsprint operations in Western Canada and the southern United States, reported Monday it earned $55 million or $1.29 per share on sales of $878 million in the quarter ended Sept. 30. That compared with a profit of $52 million or $1.21 per share on sales of $772 million a year ago.
Analysts on average had expected a profit of $1.35 per share, according to Thomson Reuters.
RBC Capital Markets analyst Paul Quinn noted that while lumber prices are off their highs of the year set in late March, they are up 25 per cent over the last four months.
"Capacity constraints are real in the form of lower timber harvests through mountain pine beetle related reductions in B.C. and lower harvest allocations in Quebec/Ontario," Quinn wrote in a note to clients.
"The implications of lower supply and higher demand from sustained export growth and the U.S. housing recovery are clear, with much higher lumber prices as a result."
Shares in West Fraser (TSX:WFT) closed up nearly six per cent, or $5.23, to $92.80 on the Toronto Stock Exchange.
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