Canadian lumber producers offer deep cyclical value
The bull case argued for Canadian lumber producers is that they trade at a steep discount to replacement value while permanent industry capacity shutdowns set the stage for a structural supply deficit.
The argument
The guest argued that while current prices are below breakeven and near-term headwinds like tariffs persist, normalized homebuilding demand over the next few years will outstrip supply. Because spruce, pine, and fir trees are geographically concentrated in Canada, substitution is limited, which should eventually drive outsized earnings power.
The thesis, stress-tested
✓ What validates it
- ✓Permanent mill closures reducing industry capacity
- ✓An uptick in North American housing starts
- ✓Lumber prices rising back above breakeven levels
▸ Risks discussed
- ▸Near-term losses from prices below breakeven
- ▸Ongoing tariff and trade disputes
- ▸Uncertain timing for the recovery of normalized homebuilding activity
Hear it yourself
"And yet today, of course, why would you buy a thing that's losing money because prices are below breakeven, shutting mills, and it's Canada, and it's lumber, and you got all kinds of tariffs going after the thing."
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