As US consumers venture out again, lumber prices are heading back to earth.
Prices for the wood have pulled back sharply from astronomical heights in recent weeks as homeowners have redirected their spending from building decks and replacing flooring to going out to eat, drink and shop after Covid-19 rules were eased in the US.
Lumber prices have plummeted 48 per cent to $875 per thousand board feet from a peak of $1,686 in early May, reflecting a sharper than expected pullback in renovation projects.
“As the economy has opened back up, people are doing less around their homes,” said Chris McIver, senior vice-president of marketing and corporate development at West Fraser, the world’s largest lumber producer. “That was enough to drive prices in the other direction which were too high and unsustainable.”
But Kevin Mason, managing director of ERA Forest Products Research, said media reports of soaring prices had caused Americans to hold off buying lumber and pause their DIY projects, which they still intend to execute as working from home endures beyond the pandemic. “It’s more demand deferral than destruction,” he said.
Lumber has been totemic of the debate around the US economy running hot: whether price rises fade as supply chains return to normal or inflation persists with demand roaring higher due to monetary and fiscal policies.
The fall in prices has given some economists greater confidence that a burst of inflation will soon pass. Yet prices remain well in excess of the previous 2018 record of $651 per thousand board feet and about three times the historical price average.
“People want to look at lumber as this inflationary metric — we’ve pulled back but we’re still some monstrous number above our average price level,” said Greg Kuta, president of broker Westline Capital Strategies. “From an inflationary standpoint, it still screams pressure . . . The inflation genie is out and you’re not going to rein it back in.”
In spite of the cooling off in cost, lumber brokers expect lofty prices for years. That is mainly down to strong demand for new homes after decades of underbuilding and lower mortgage rates during the pandemic unlocked a generation of millennial property buyers.
To meet that demand, sawmills can steadily increase supply, but any quick rise in capacity is tough, analysts added. On top of equipment and contractor supply constraints, forestry regions face idiosyncratic issues from labour shortages in the south of the US to aftereffects from a mountain pine beetle epidemic in British Columbia.