Lumber Companies Expand Capacity As Wood Prices Hit New Highs

North American lumber companies are expanding capacity at existing mills as strong home construction fuels demand for wood.

West Fraser Timber Co., (TSX:WFG) the world’s biggest lumber producer, plans to expand capacity at five of its lumber mills in the U.S. Interfor (TSX:IFP) is rebuilding a sawmill in Georgia that is on track for completion by the end of 2021. Both companies expect home-building and renovation demand to continue supporting strong prices for wood products.

Interfor shares soared to a new high Friday after the company reported record quarterly earnings. West Fraser climbed as much as 1.9%.

The pandemic-fueled surge in home construction took North American sawmills by surprise, sending lumber prices to new records. U.S. lumber futures this week hit $1,600 U.S. per 1,000 board feet for the first time, a four-fold increase from a year ago. While production has since ramped up, demand continues to outpace supply.

The expansions will be primarily in the southern U.S., where there is an abundance of planted timber available to be harvested. They should help to increase overall inventories in the country and push prices off their record highs over time. But that won’t come fast enough to alleviate supply constraints during the peak summer building season.

West Fraser Timber plans to invest roughly $150 million U.S. at five of its U.S. south lumber mills under its strategic capital program. Already, it’s increasing the number of working shifts at mills where possible, the company said in a statement.

A trucking shortage combined with severe winter weather in the first few months of this year slowed lumber deliveries across the continent, where builders scramble to get their hands on building materials. West Fraser said it is attempting to secure additional transportation resources and is already seeing an improvement in shipping early in the second quarter.