Paul MacDonald

Confused about what’s going on in the economy these days? You’ve got lots of company. Case in point: there are some mixed signals out there in terms of a recovery in the all important U.S. housing market, the main market for Canadian lumber.

April U.S. housing starts numbers are in, and there was a plunge in condominium and apartment buildings starts—but there was also the second straight gain in starts on single-family dwellings.

Housing starts unexpectedly slid 13 percent to an annual rate of 458,000, led by a 46 percent tumble in multifamily starts, which tend to be more volatile. Those looking the start of a bottoming out, or even the early signs of a recovery, are focusing on the positive news about single family dwellings.

On a related front, the giants of home improvement retailing, Home Depot and Lowe’s, have both posted first-quarter earnings that exceeded estimates, another sign of a possible recovery. And a survey showed that confidence among U.S. homebuilders in May rose to the highest level since September.

It could be some time before these signs have any kind of impact on Canadian forest products companies. Numbers from PricewaterhouseCoopers showed the net earnings of 14 of the largest Canadian forest products companies deteriorated by $91 million during the first quarter of 2009 to total of $480 million, compared to the same quarter of 2008.

Losses of $314 million incurred by Western Canadian companies for the first quarter of 2009 were comparable to losses in the same period in 2008. But the performance of Eastern Canadian companies got worse, and dropped a further $89 million to a loss of $166 million compared to the first quarter of 2008, reports PwC.

There’s plenty of financial misery to go around, including south of the line. Ten of the largest public US-based forest and paper companies posted cumulative losses of US $63 million in the first quarter of 2009, down US $429 million from earnings of US $366 million in the same period of 2008.

At the PricewaterhouseCoopers forest industry conference, PwC’s Craig Campbell, cut to the chase: “Why is it so tough to make a buck these days in the industry? Well, the challenge is that the economic influencers of forest and paper operations haven’t changed through the years and the expenditures required to build mills and keep them running are huge. Furthermore, we’ve been dealing with over-supply for many years now, and the current economic conditions aren’t helping. Add in non-differentiated products, and you have the makings for real challenges to make a decent return.”

Last year lumber prices were at 25 year lows. However, in Q4 of 2008 prices were even lower at US$181 per mfbm versus US$225 per mfbm in the same quarter of 2007.

Stay tuned for further updates.