Over the last month, lumber prices across the US have soared once again. The price of lumber has been unstable since the beginning of the COVID-19 pandemic, drastically dipping and suddenly spiking throughout the last two years. Source: Newsweek
Despite an initial decline in prices in the new year, lumber prices have surged throughout February and are currently sitting at US$1,272 per thousand board feet, prices not seen since summer 2021.
The most recent producer price index report published by the Labor Department revealed that prices for softwood lumber shot up a whopping 25.4% in the month of January alone.
Robert Bardon, a professor of forestry and environmental resources and associate dean for extension at North Carolina State University’s College of Natural Resources, claimed the surges in prices to be unprecedented.
“These spikes that we have seen over the last couple years have been historic. I cannot think of other times in recent history where we have seen such volatility in the market,” he said.
Current prices have not hit the peak that was reached in May 2021 but are still roughly three-times more expensive than the average price prior to the pandemic. There are a number of factors that are collectively contributing to the rising prices and disruption of the lumber market, with a construction boom being a driving force.
Mr Bardon summarized the crisis: “Several factors can be playing into lumber shortage and price surge. The demand for housing continues to increase, which puts pressure on the supply chain. The supply chain is still being impacted by the effect of the pandemic on the transportation networks that are relied on to move the lumber. A shortage of workers continues to slow down the supply chain.”
National sawmills have been struggling to keep up with the increased demand and though output has recovered since the outbreak of the pandemic, labor shortages are still slowing down production. The spike in prices has also been reflected in the costs of home building and renovations. According to The National Association of Home Builders, the surge in lumber prices has increased home building costs by over US$18,600.
The recent trucking strike in Canada has also impacted the issue, though Brian Leonard, Risk Analyst at RCM Alternatives, added there is also an underlying logistical issue playing a part.
“Today we have less of a shortage and more of a logistics issue. Many of the Canadian producers can’t get enough railcars to keep shipments flowing. This has created a large inventory supply at the mills and little inventory in the field. The sharp historic increase we have seen in the last few years is more related to a lessening of log supply in much of Canada and the US. The mills produce less and that came at a time when availability for homes was at a record low. It was the perfect storm,” he said.
Additionally, the supply chain has also been suffering disruptions and has seen itself affected by tariffs as well as averse meteorological conditions.
The coastal wildfires that have hit the US West Coast and part of British Columbia have added to the problem, as did torrential rains that struck the Canadian province late last year–which wiped out a number of key transportation routes.
“Wet weather or major snow storms can impact the supply network, both in retrieving raw materials and in the transportation of the materials to the manufacturer and to the buyer of the lumber. Wildfires can destroy the timber or lead to other issues that hamper the retrieval of the trees,” Mr Bardon added.
It is, understandably, hard to predict how the lumber market will progress and whether the prices will settle or continue to develop in peaks and troughs, though Mr Leonard believes the price will continue to be dictated by demand.
“Lumber prices will settle once demand slows. We will see prices fall with better logistics, but because of logging the market will never be able to keep pace with rising demand. Prices will come down as we get closer to summer, but there will still be a risk of going back up if demand picks up,” he said.
