Lumber Prices Fall as Demand Pressure Eases ... Supply Up

As US consumers venture out, 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.

Lumber prices have fallen almost 50% 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.

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. “It’s more demand deferral than destruction,” he said.

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 under building and lower mortgage rates during the pandemic unlocked a generation of millennial property buyers.

On top of equipment and contractor supply constraints, forestry regions face issues from labour shortages in the south of the US to after effects from a mountain pine beetle epidemic in British Columbia.

Lumber prices in the futures market are down more than 45 percent from their peak, slipping below $1,000 for the first time in months. That’s still high between 2009 and 2019, prices averaged less than $400 per thousand board feet. The sell-off has been gaining momentum over the last few weeks. The price has fallen in 11 of the last 12 trading sessions, including a 0.5 percent drop to settle at $900.80 on Friday, according to FactSet data.

Cathie Wood of Ark Invest said during the past six weeks, lumber prices have dropped more than 46% from $1,686 to $897.90 per thousand board feet while copper prices have dropped roughly 12.78% from $4.77 per pound to $4.16.2

We believe oil prices will not be far behind, despite the significant cutbacks in energy-related capital spending, particularly if drivers in the ride-sharing space take advantage of the lower total cost of EV ownership.

FT Timber Prices Fall As US Consumers Swap DIY for Going Out 
Harry Dempsey 21 June 2021
Cathie Wood Ark Invest