Wood prices soar as supply struggles to match rebound after Covid-19

United States wood prices are racing higher amid a vigorous economic recovery from the pandemic, blasting through previous records as sawmills struggle to keep pace with demand in the runup to peak homebuilding season.

Lumber futures have soared by more than 50 per cent this year to more than US$1327 per 1000 board feet (304m) as housebuilders and DIY stores scramble for increasingly scarce supplies.

That has taken gains since the depths of the Covid-19 crisis to 400 per cent, and significantly above the contract’s previous high of US$650 set in 2018.

The physical market is also red hot, with the price of the preferred product for wooden framing — lengths of spruce, pine and fir — rising 30 per cent since the turn of the year, according to lumber pricing company Fastmarkets Random Lengths.

Market veterans are stunned by the scale of the rally and say it underlines the inflationary challenge facing the US economy as it springs back from pandemic lockdowns that have crushed inventories and production.

“I’ve followed these markets for 37 years and I have never seen it go more gangbusters,” said Mark Wilde, analyst at BMO Capital Markets.

Supply constraints have already sparked alarm; the National Association of Home Builders recently called on US Secretary of Commerce Gina Raimondo to launch an investigation and “seek immediate remedies that will increase production”.

One suggestion is to reduce tariffs on imports from Canada, the top lumber exporter to the US.

The National Association of Homebuilders estimates the increase in lumber prices since last northern spring has added more than US$24,000 to the cost of building an average new single family home, which is now between US$300,000 and US$330,000.

At the same time, the volume of imports, particularly from Canada, is lower now than it was in 2016 owing to tariffs and mountain pine beetles that hit forests in British

Columbia.

“It’s the perfect storm of very strong demand and a very slow supply response because of a decade of underbuilding and Covid,” said Paul Jannke of Forest Economic Advisers.

He said the seeds of the lumber rally were sown last year. As the pandemic spread across North America, many sawmills reduced production in expectation of plunging demand. Dealers also ordered less material and ran down their inventories.

But demand was strong as lockdown restrictions inspired a wave of DIY and renovation projects. Lumber prices also received a boost from low interest rates that fast-tracked a recovery in housing demand, as urbanites moved to rural homes.

“We’ve been through a decade of underbuilding since the financial crisis so there is a high level of pent-up demand that was released by a combination of low interest rates and the desire to move out of cities,” said Jannke.

Building activity has remained strong this year, with overall housing starts up 19.4 per cent to a seasonally adjusted annual rate of 1.74 million units in March — the fastest pace of growth since June 2006.

Caught on the hop, sawmills and dealers were not able to replenish their inventories. Stocks remain at critically low levels heading into the peak of the house-building season.

On the supply side, the downturn in the housing market that followed the financial crisis led to a large number of sawmills closing.

In the meantime, the run-up in lumber prices is proving to be hugely profitable for big forestry companies. “The guy in the middle who is turning the log into lumber is just absolutely crushing it,” said Wilde at BMO.

“I think this is the greatest market in my career, which goes back into the 80s, and probably the greatest in the last 100 years for lumber producers. For a southern sawmill operator this is the golden age.”