US-based lumber producers could still get the axe despite homebuilders evident strength
Pretty much as anticipated both economic & corporate releases yesterday captured the strength within US homebuilders....Housing Starts came in ahead of consensus and essentially boost homebuilders productivity benefit, deflate unit labour cost and boost margins... NVR also reported 15’Q3 bottomline earnings ahead of expectations but crucially from our perspective as Pbt came-in 72bps higher than consensus and new contracts rose by 11%.... Rising housing starts and improved homebuilder profitability.... you might be forgiven to surmise that lumber producers such as Louisiana-Pacific wood (sic) benefit in this environment. Sadly this is not the case....Though we can discern a moderate improvement in volume (chart 4) the pricing picture is not encouraging (charts 3). Once again US$ strength has invited cheap lumber imports which pin LPX’s pricing power down and seize market share. Alarmingly for processors of millwork, plywood & structural wood members margins slipped into contraction territory in September and does not bode well, certainly for their Q4 earnings, if not for their Q3 report early November (charts 1 & 2). Take heed, not all housing related sectors will turn to gold.
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