Recommendation (updated ad hoc)Prices are above the short term moving average, and here we are always monitoring for new hedging opportunities. But since we have warning sign of a possible downtrend in prices and since the price is just about to (perhaps) break below the short term moving average we should not start any hedge right now. An alternative approach is to consider the seasonality aspect to be true (price topping in August), and then make a short hedge from now to August 2010. Fundamental analysis (updated monthly)In general we can now conclude that the wood industry is very sensitive to changes in global economy as it has been suffering severely from the effects of the economic crisis. We have seen a both global production and regional sawnwood production decrease as a consequence of the crisis. This is caused by a sudden a massive drop in consumption, which has created a fairly unbalanced market. This perspective is reflected when combining the two forces at play in our supply/demand balance. However, when subtracting the net export from the supply level we see that demand has actually exceeded supply slightly in 2009 on the European market. A trend that is forecasted to continue in 2010 if the suppliers do not adjust their export level. Another factor that is creating an upward pressure on the wood price is the cost driver, that represented by the log price, is currently in an uptrend. Unfortunately we do not have any hard data on the inventory levels.
In general we must consider the sawnwood market to be in a uptrend with increasing prices. However, the market is very sensitive and changes can soon occur, but for a new fundamental situation to happen we need new confirmed data. | Technical Analysis (updated weekly)Short term (0-5 months):
July gave yet another small price increase - from index 130.5 to index 131.3. This means wood prices are still above the moving averages and also above the black trendline. So the uptrend is still very much intact.
We have some early warnings that tell that we are in the latter part of this uptrend. We believe this uptrend could very well end at roughly 132 (which is our original estimate). But so far these are just early warnings, and we have to get a break of the moving average and trendline before we have an objective signal. An early signal is only used to make sure that we do not make long term price agreements at this top. But short agreements and inventory build up is still possible. Overall this means that we keep the red (up) arrow for a while longer, but that we expect to change it to green some time in the 2nd part of 2010 (when prices fall below the short term moving average). If we study the seasonality aspect of prices (see Figure 24 in the fundamentals) then there is a tendency for prices to top in August. This is just a statistical tendency and may not happen this year, but it shows that a continued price increase until July/August could be one outcome.
Just to make the time distinction clear. If we get a price decline in the 2nd half of 2010, then this will most likely only be a temporary one, leading to further price increases a bit later on (please read "major trend" section about this). So we will follow the signals here and give the signs when to make a new hedging. But right now we have to take one wave at a time, and currently we are watching an intact uptrend and seeing when this will end.
Medium term (6-12 months):
The current medium term uptrend started in January 2009 at index 105, and is still intact today, which is a 19 month increase. This is normally too long for a medium term uptrend and this is because this is also a major uptrend (see "major trend"). But we could likely be in the latter part of the current medium term uptrend because the RSI is above 80, which is an area where prices previously have peaked. The theoretical top point of this uptrend is summer 2010. Prices usually tops out months before or months after, but very seldom on the theoretical top point itself. So as we haven't reached the top price yet, we must assume that it can take a few months to achieve it - but the high RSI reading also shows that we are that the latter end of the uptrend.
Major trend (1-3+ years):
Wood prices are above the long term moving average and above RSI 60. This is a real uptrend. The MACD is also above the zero line and the signal line, so this is not just an uptrend but a major uptrend. Major uptrend are usually more severe and can often last 2-3 years. The only sign of (a temporary) weakness is that the ROC is showing a warning. This in combination with a very high RSI reading may quite likely lead to falling prices. A price fall in a "major uptrend" is usually just a temporary easing, followed by a new round of increasing prices (which makes it a "buying opportunity"). So far this is still just an early warning and we will follow the signals here. Business Cycle analysis (updated twice a year)This section is being added later. |