2013 has been a difficult year for many commodities, with significant declines in the price of gold, aluminium and iron ore, for example. However, we have identified one area in which the supply and demand dynamics look favourable for pricing in both the short and the long term, driven by climate change dynamics as well as current economics. This area is US timber.
The US timber market is tight on both the supply and the demand side, and looks set to remain so. Timber is grown largely in two areas in the US: the southern states and the Pacific North West.
The majority is consumed domestically for use as lumber in the construction and renovation of US housing. The recovery in US housing starts, which is now a clearly established trend, is therefore expected to create significant demand for the product.
In addition, some 10-15% of timber grown in the Pacific North West and western Canada is exported to Asia for use in general construction activity (in China) and home-building (in Japan, where high quality Douglas fir logs are a prized commodity). We view the current Japanese economic recovery as a significant additional positive for timber demand from these north-western regions. The type of softwood required for this construction activity in Asia cannot be locally grown, so there is little risk of substitution.
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