Monday, March 14, 2011

Increased demand for Timber Products likely

One of the saddest picture that came out of the Great Earthquake in Sendai, Japan (& the subsequent Tsunami) last Friday was the huge amount of devastation to the homes of the residents as well as other properties. This damage will require enormous amount of building materials. One of the main building materials seems to be tropical hard wood.

I have appended below the 20-year chart for Sarawak Hard Log & Red Meranti Sawn timber for our perusal. We can that the prices of these 2 products are presently in an uptrend. A sudden increase in demand would lead to further increases in prices of the products. We can see when Kobe earthquake hit in 1995, the subsequent increased demand was able to sustain the prices of the same products for the next 2 years- despite these products having peaked earlier in 1993-1994.

Chart 1: 20-year price chart for Sarawak Hard Logs, Japan (Source: Mongabay)

Chart 2: 20-year price chart for Dark Red Meranti sawn timber (Source: Mongabay)

Below, I have appended the charts for 3 main timber stocks that may benefit from the increased demand in log & sawn timber. They are JTiasa, Lingui & WTK.

Chart 3: JTiasa's weekly chart as at Mar 7, 2011 (Source: Tradesignum)

Chart 4: Lingui's weekly chart as at Mar 7, 2011 (Source: Tradesignum)

Chart 5: WTK's weekly chart as at Mar 7, 2011 (Source: Tradesignum)

One timber stock that I've overlooked- TaAnn!

Chart 6: TaAnn's weekly chart as at Mar 7, 2011 (Source: Tradesignum)


rob said...

Hi Alex,

Out of these few, which you think has the most upside potentials?

leslieroycarter said...

Dear Alex:
Tsunami and earthquake stricken prone areas will be the last to rebuilt given the many uncertainties lying ahead. Since japan is starved of lands , the possibility of rebuilt is great abeit the dangers of future dangers . Many building and construction materials will be greatly sought after thus the expected demand will surpass the supply and ultimately justify the price increases not restricted to logs and sawn timber alone.

Wedding Gifts, Favours, Bells... said...

EKSONS should benefit well too...

Alex Lu said...

Hi Wedding Gifts, Favours, Bells

Yes, EKSONS should benefit as well. One should aim to get into those timber stocks with large concession area, such as JTiasa, TaAnn, Lingui & WTK.

Alex Lu said...

Hi leslieroycarter

You are right. Many building materials would enjoy better prices. However, not many will see a faster profit margin growth than timber products.

Alex Lu said...

Hi rob

We will face a big dilemma of which one to buy- those that are cheap but technically weak (such as Lingui or WTK) or those that are more costly but technically stronger (such as JTiasa or TaAnn). The choice is yours...

Marco said...

How about Evergrn?

Alex Lu said...

Hi Marco

Evergrn and the other producers of particle board & MDF will enjoy a pick up in sales. The same should also apply to furniture makers.

Roger Ho said...

Mieco is moving northwards after 30 weeks of consolidation. I'm looking at 97 sen, the high done on 13 August 2010. What is your opinion?

Alex Lu said...

Hi Roger Ho

Mieco was a high flier once upon a time. However, for the past 5-6 years, it has done very little flying, mostly diving.

It may have formed a base at RM0.16-0.30 in 2008-2009. Now the stock appears to be on a recovery mode. To be sure, it needs to show a decent financial results to array investors' fear. That is sorely lacking. As such, any rally will be timid or short-lived. I see support at RM0.70 & resistance at RM1.00.