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Charley Drives Up Price of Lumber

The hurricane that slammed into Florida exacerbates an already tight supply of wood products in the U.S.

August 19, 2004|From Bloomberg News

Lumber prices rose to their highest level in 10 years Wednesday, as Florida's homeowners and businesses rebuild after Hurricane Charley, the second most-destructive U.S. hurricane after Andrew in 1992.

Lumber futures for September delivery rose $15, the maximum increase allowed by the Chicago Mercantile Exchange, to $442 per 1,000 feet of two-by-fours. That's the highest for a most-active contract since March 1994. The 3.5% gain was the biggest in seven months.

Before Friday, lumber prices gained 36% in the last year as North American housing demand surged. Charley struck Florida's southwest coast five days ago, causing $11 billion in residential losses, the state's Department of Financial Services said. About 88,375 housing units were damaged and 2,494 were destroyed, displacing 144,623 people, the Federal Emergency Management Agency in Washington said.

"We have seen significant increases" in lumber sales in the hardest-hit Florida towns of Punta Gorda and Port Charlotte, said Ron Jarvis, vice president of lumber merchandising at Atlanta-based Home Depot Inc. Sales in other parts of the state hit by Charley have been "sporadic," he said. "Rebuilding probably takes weeks to months to get underway."

Home Depot shipped an extra 440,000 sheets of plywood into the Fort Myers and Tampa area before the storm and froze prices in the state.

The Chicago exchange increased its limit for price swings Wednesday after futures rose by $10, the previous maximum, in the last two sessions. The price surged 9.5% since Thursday. A futures contract is an agreement to buy or sell a commodity at a specific price and date.

"The amount of lumber that's going to be needed to rebuild is bullish for the market," said Stephen Davis, a futures broker at R.J. O'Brien & Associates in Chicago. Prices may reach $450 to $465 in the coming weeks, he said.

Home Depot increased its lumber inventory threefold in distribution centers in New Orleans, Tampa and Miami by July 15 in preparation for the hurricane season, Jarvis said.

U.S. housing starts climbed 8.3% in July, more than forecast. Construction permits, a sign of future activity, increased 5.7% to a 2.06 million annual pace.

Canada may build 225,700 homes this year, the highest since 1987, according to Canada Mortgage & Housing Corp., a government agency based in Ottawa.

"In all areas of North America, demand is very robust" for lumber, said Ernie Thony, vice president of lumber sales at Vancouver, Canada-based West Fraser Timber Co., North America's third-biggest lumber producer. "Something like Hurricane Charley just adds a little more fuel to the fire."

Shares of Home Depot rose 93 cents Wednesday to $36.03 on the New York Stock Exchange.

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