Northern Timber, Southern Gold 

Focus: GLOBAL

Eoin Treacy Image Eoin Treacy Global Strategist, Fullermoney.com

Canada's West Fraser Timber should benefit from rising lumber prices, while several smaller Australian gold producers have nicely weathered the correction in metals, writes Eoin Treacy of Fullermoney.

Lumber [recently] concluded a remarkable advance, having been limit-up at least once intraweek, and is attracting increased investor attention because of its performance compared to the wider commodity markets. It broke the five-year progression of lower rally highs in November, consolidated below $250 for two months, and broke emphatically upwards [the week before last], reasserting the medium-term up trend. It is somewhat overextended in the short term, but a sustained move back below $235 would be needed to question the consistency of the medium-term advance.

Given the considerable stress the lumber industry has been under over the last few years, it is perhaps not so surprising that the shares are lagging the commodity price. However, if lumber's recovery is to persist, it will need to be supported by increased investor activity, which should be reflected in higher related share prices. Provided lumber companies have not hedged their production at lower prices, the recovering price of the commodity should begin to be reflected in their earnings relatively soon. The general stock market pullback has also probably had an effect on the shares.

West Fraser Timber (Toronto: WFT) successfully completed its base with a sustained break above C$30 in November. A sustained move back below C$28 would be required to question potential for further [price advances]. [Shares closed at C$35.98 in Toronto Tuesday—Editor]

A subscriber [sent] an interesting report by Craig Sainsbury and colleagues for Citi covering the Australian junior gold mining sector.