World’s Top Lumber Firm to Expand U.S. Mill Capacity Amid Boom

(Bloomberg) -- West Fraser Timber Co. plans to expand capacity at five of its lumber mills in the U.S. South as a home-building boom fuels lumber demand.

The pandemic-fueled surge in home construction last year took North American sawmills by surprise, sending lumber prices to new records. U.S. futures this week hit $1,600 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 supplies as home-buying and renovations continue.

“In the lumber segment we expect to invest approximately $150 million at five of our U.S. South lumber mills under the strategic capital program,” the company said Thursday in a statement. “Investments at the target mills will expand their capacity, increase the mix of higher-margin 2x4s and reduce fixed and variable production costs.”

Key Takeaways

• The Vancouver-based company acquired Norbord Inc., one of the world’s biggest makers of oriented strand board, in February. West Fraser said it will invest $30 million at two OSB mills to improve productivity.

• Log costs for the company’s Canadian and engineered wood product operations are expected to remain elevated as long as demand exceeds available log supply in B.C.

  • Higher Canadian stumpage rates and increased costs from extreme weather in the U.S. south, negatively impacted adjusted EBITDA compared to the prior quarter, the company said.
• Adjusted EBITDA for lumber in the last three months of 2020, when prices were unseasonably high due to strong home building and renovation demand, was $425 million. This jumped to $646 million in the first three months of 2021.
• West Fraser said it will move forward with roughly $180 million of additional capital projects in the second half of 2021 through 2023, and reiterated its capital expenditure target of roughly $450 million this year.

Market Reaction

• West Fraser shares are up 28% this year through Thursday’s close, after reaching a record high at C$106.42 last month in Toronto, outperforming the nearly 11% gain of Canada’s benchmark S&P/TSX Composite Index.

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• First-quarter adjusted EBITDA was $1 billion or $6.96 a share, missing the C$1.18 billion average estimate in a Bloomberg survey.
• Read more about West Fraser’s quarterly results here.

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