Timber (there she goes)

I keep reading that in America new house starts are now on the increase after four years of retraction. Similarly the Developing World’s new rich middle classes are also demanding more individual housing as opposed to high rise flats. This type of housing is likely to be of a timber framed construction. The cheap high rise apartments that are being built to house the masses, and reduce the shanty towns that blight the poor cities in the developing world, are frequently constructed using timber framed factory modules. All these new dwellings will require furniture and even if this furniture is made from chipboard, the chipboard is made from timber chips in the first place. All of the above will require astronomical amounts of timber.

As the world’s economies exit this long recession there will be the need to satisfy this pent up demand for housing. Where will the timber come from and will there be enough to satisfy demand? In the first instance I dont know, and in the second instance no there won’t. Timber has a long term growth plan and cannot be switched on and off. The days of wholesale forest clearances are gone as the environmental lobby fortunately now influences these commercial decisions. Even if new timber plantations are being planted today to replace those that are being harvested, it is not nearly enough. The new plantations even using new generation tip planting techniques will take twenty five years to produce the crop. So demand must far exceed supply. As a consequence the price of timber must continue to rise even more sharply than it has already done in recent years.

So how might it be possible to take a financial advantage of this potential hike in world timber prices. Well as it happens there is an ETF that covers this arena and it has just reared its head in the Saltydog numbers. It is named S&P Global Timber and Forestry (IE) and has the most wonderful Ticker of WOOD. How appropriate. So it has to be worth watching this to see which way it moves over the next few weeks and months. Maybe worth a punt.

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