U.S. lumber futures surge 4 pct as trade deal with Canada expires

By Michael Hirtzer
CHICAGO, Oct 12 (Reuters) - U.S. lumber futures LBc1
jumped 4 percent to their highest levels in a month on Monday as
inventories of the building material ran low and a nearly
decade-old trade deal with Canada expired, traders and analysts
said.
Investors and wood users who bet on lower lumber prices
following the expiration this week of the 2006 Softwood Lumber
Agreement between the United States and Canada have been
covering their short positions - in both physical supplies and
futures.
The trade deal, known as SLA, taxed lumber exported from
western Canada into the United States. The exports were taxed at
escalating rates as cash timber prices declined, making the
Canadian wood more competitive with pricier supplies produced by
U.S. saw mills.
As the deal neared its expiration and the Canadian dollar
CAD= lost value against the greenback .DXY , traders bet that
prices would decline as cheaper wood flooded across the border
in what one analyst called a "wall of wood."
It is too early to say whether that influx of lumber will
materialize. However, U.S. imports of Canadian timber in October
were on pace to be the smallest monthly volumes in at least two
years, Canadian government data showed.
"The marketplace expected a wall of wood, but my (clients)
are tight on everything," said Robin Cross, a lumber broker for
INTL FCStone in Chicago. "Funds all sold knowing the deal was
expiring, and now they're covering."
Lumber futures on the Chicago Mercantile Exchange 0#LB:
have now posted gains for six sessions in a row, and have surged
more than 18 percent since touching a roughly four-year low on
Sept. 28.
Lumber for November delivery LBX5 on Monday rose by the
daily price limit of $10 per thousand board feet, to $254.40 per
tbf.
Another analyst, who declined to be quoted by name due to
company policy, said wood prices could remain elevated for
another month, before trade between the neighboring countries
normalized.
"Purely and simply the industry misjudged their level of
activity and how much wood they would need," the analyst, based
in the U.S. Pacific Northwest, said.