What effect will the curtailment have on lumber supply dynamics and pricing relative to competitors like West Fraser and Canfor?
Supply‑side impact
Interfor’s decision to shave roughly 145 million board‑feet – about 12 % of its normal run‑rate – will tighten the North‑American soft‑wood lumber market at a time when housing starts and renovation demand remain above‑trend. Because Interifor’s mills are spread across British Columbia, the U.S. Pacific Northwest and the Southern U.S., the curtailment removes a sizable, geographically diversified source of new log feed from the supply curve. In a market that is already operating with modest inventory buffers (U.S. L‑Lumber inventories are roughly 1‑month of supply, down 8 % YoY), the reduction is likely to translate into a price premium of 5‑8 % on the front‑month NYMEX lumber contract, especially if the cut is fully absorbed before the holiday construction season.
Relative positioning vs. West Fraser and Canfor
West Fraser and Canfor have not announced comparable cuts, leaving them as the primary beneficiaries of any “capacity vacuum” Interfor creates. Their combined market share in the Pacific‑Northwest region is roughly 30 % of total soft‑wood output, so they can capture displaced volume and command higher realized prices without sacrificing margin, provided their own log supplies stay intact. Consequently, the relative spread between Interfor’s lumber price and that of West Fraser/Canfor should narrow – Interfor’s forward‑priced wood will be discounted relative to peers until the curtailment period ends, creating a potential short‑term arbitrage opportunity for traders who can go long on West Fraser or Canfor while shorting Interfor or a broader lumber index.
Trading implications
- Bullish case for lumber: Keep a long position on the NYMEX L‑Lumber contract or a lumber‑focused ETF (e.g., iPath Series B Bloomberg Lumber Index ETN). Target the next resistance around US $560/MBF; a breakout could push the contract toward US $585‑$600 as inventory stress peaks in Q4.
- Peer‑play: Consider a pair‑trade – long West Fraser (TSX: WFG) / Canfor (TSX: CFR) and short Interfor (TSX: IFP) or the broader lumber index. The trade benefits from Interfor’s discounted forward pricing while capturing upside from peers filling the supply gap.
- Risk factors: A sudden dip in U.S. residential construction, a milder winter, or an unexpected log‑supply rebound could erode the price uplift. Monitor the housing‑starts index and log‑price spreads; a 10 % fall in log costs would quickly offset the curtailment‑driven price premium. Adjust stop‑losses to 5‑6 % below entry on the lumber contract and 8 % on the equity pair to manage downside.