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UPDATE 1-Australia hardware chain Bunnings sees timber price 'challenge'

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SYDNEY, June 3 (Reuters) - Australian hardware chain Bunnings expects elevated timber prices to squeeze its margins for up to another year, its managing director said on Thursday, as a boom in home improvement and construction drives a surge in demand.

“We think about timber (and) we’ve probably got another six to 12 months of some challenge,” Michael Schneider said in an investor briefing hosted by Bunnings owner Wesfarmers Ltd .

“Feedstock is in a reasonably good space, but getting it through the mills and, clearly, the strong demand is putting pressure on,” added Schneider, using the term for raw timber that is processed into usable wood products.

Amid restrictions on movement to stop the spread of COVID-19, people around the world are looking for bigger homes or embarking on renovation projects, sapping supply and driving up market prices for the most important component, timber.

Supported by government stimulus payments, Australian approvals to build now houses leapt 67% to a record high in the month of April, compared to the same month a year earlier in the initial stages of pandemic-induced lockdowns. The United States recorded similar figures.

NASDAQ-listed lumber futures have quadrupled in a year, according to the U.S. exchange’s website.

Schneider said Bunnings, which dominates Australian home improvement with 50% market share and no close rival, was reluctant to put up shelf prices and hoped to tackle the margin pressure by cutting costs.

“We do a lot of work with our suppliers to look at ways that we can offset costs through improved efficiencies in supply chain or volume purchases,” he said. (Reporting by Byron Kaye; Editing by Muralikumar Anantharaman and Stephen Coates)

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