Lumber frenzy depletes inventory, drives up prices
The frenzy sweeping the lumber market will likely keep going through the summer peak of U.S. home building as labour shortages and depleted inventories mean that supplies can’t keep up with skyrocketing demand.
Tightness is acute across the entire timber supply chain. Sawmills have had trouble ramping up fast enough to meet the surge in demand. Meanwhile, trucking delays and worker shortages at lumber yards have added to costs, which are now getting passed on to consumers. Lumber futures have surged more than 60 per cent to record highs this year, and analysts aren’t expecting any relief until late 2021.
That will keep pouring fuel on red-hot home prices, making ownership less affordable for large swaths of the population. Soaring wood costs have already added more than US$24,000 to the price of the average new U.S. house, according to National Association of Home Builders. Industry groups and lawmakers have called on the Biden administration to step in and find remedies for the lumber shortage.
“Each part of the supply chain has different issues,” said Brooks Mendell, chief executive officer of forest-supply researcher Forisk Consulting in Georgia. “There is not a sawmill that I have talked to in two years that has all their slots filled.”
This is a big turnaround from just two years ago. In 2019, weak demand prompted a steady stream of output reductions and mill closures from companies including Canfor Corp. and West Fraser Timber Co., the world’s biggest lumber supplier. That left producers flat footed amid unexpected demand as the pandemic kept people indoors, sparking a wave of do-it-yourself upgrades, fullscale renovations and purchases of bigger homes.
When demand held strong throughout the winter, typically a seasonal lull, mills didn’t have time to replenish their inventories. Now, stockpiles are “extremely lean” as North America heads back into peak building season and lumber prices will stay high “for the foreseeable future,” Devin Stockfish, the CEO of Weyerhaeuser Co., said last month.
Lumber futures have more than tripled since the pandemic started, touching an all-time high of US$1,157.50 per 1,000 board feet last Monday.
Cash markets are also blistering. Oriented strand board, used as sheathing for walls, soared to a record US$999 per 1,000 square feet at the end of March, up from US$329 in June, according to lumber pricing company Random Lengths.
Across commodities, supply chains are snarled at a time when the economic rebound is driving demand higher. While investors have backed down from some of their price optimism for now, markets with production issues are still moving higher. Coffee is a prime example, with signs that a global deficit is widening. Meanwhile, dwindling rubber supplies are causing headaches for automakers.
For lumber, long-standing labour shortages are limiting efforts to boost inventories in places like the southern U.S., home to half of the country’s production. Many of the industry’s jobs are relatively low paying, require physical labour and can sometimes be dangerous, which keeps people from filling open slots even when unemployment is high.
The number of people working in U.S. sawmills and doing wood preservation is down roughly 30 per cent from 20 years ago, with the number of loggers dropping almost 40 per cent, U.S. Bureau of Labor Statistics data show.
“The chronic labour shortage is a significant piece of the puzzle,” said Paul Jannke, principal of Forest Economic Advisors LLC, a wood product analysis company near Boston.
Labour isn’t the only longterm supply issue. Climate change and extreme weather are threatening logging. A plague of tiny mountain pine beetles is getting worse as warmer winters allow the bugs to thrive in more place across the globe. Massive wildfires are an increasing concern for forests along the U.S. and British Columbia coast. Meanwhile, the timber industry and environmental advocates have also jockeyed over what lands should stay protected.
The beetle infestation in Europe is actually helping to increase U.S. supplies this year, though, since the insects are killing so many trees and boosting logging. U.S. lumber imports will need to grow by about 15 per cent in 2021 to meet the jump in demand, and much of that is expected to come from Europe, Jannke said in a recent presentation.
Lumber supplies aren’t expected to return to normal until late 2021, after this year’s peak in homebuilding. By then, demand could start to abate. But more importantly, output gains will help rebuild stockpiles.