Lumber buyers take just enough to get by

With U.S. lumber prices at fresh record highs, construction companies and wood wholesalers are buying just enough to get by, threatening to make price swings even bigger.

Lumber futures in Chicago reached a record $855.10 per 1,000 board feet on Tuesday, having surged more than 30% since Jan. 12. This price surge during what is typically a winter lull has surprised the industry, raising homebuilding costs and forcing many buyers to purchase only their immediate needs. That may filter through to housing prices, while also boosting earnings at lumber companies such as Weyerhaeuser Co. and West Fraser Timber Co.

“Everyone knows that current prices are stupid but the choice is either pay up or run out,” Vince Bulic, president of Vancouver-area Yaletown Lumber Industries Ltd., said in a Jan. 22 note. “Comfortable prices do not seem to be on the near-term horizon.”

Record-low borrowing rates and an exodus from major cities triggered a homebuilding spree, with U.S. home construction starts in December reaching the fastest pace since 2006, while lockdowns also spurred demand for home renovations. At the same time, mills couldn’t ramp up fast enough to keep available supplies from drawing down.

Prices on the physical market have largely tracked the rallies in futures prices, with some time lag, signaling higher prices are yet to come for buyers.