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February 24, 2020The Growing Cost of Lumber – February 2020
Feeling like your profit margin has been getting squeezed lately? You’re not alone. Lumber is on the rise, reaching above $450 per 1,000 board feet for the first time in over a year, and futures are showing a continuation of this trend.
While global trade wars and a potential pandemic have slowed other industrial commodities in recent months (ie crude oil, copper), the price of wood has ignored these factors.
The slow and steady rally began in October of 2018 after dropping below $300 per 1,000 board feet, with a 33% increase in lumber futures since last June alone.
While global trade wars and a potential pandemic have slowed other industrial commodities in recent months (ie crude oil, copper), the price of wood has ignored these factors.
The slow and steady rally began in October of 2018 after dropping below $300 per 1,000 board feet, with a 33% increase in lumber futures since last June alone.
Why Is The Price Of Lumber Going Up?
Lumber follows the ups and downs of both the US bond market as well as changes in interest rates, generally making it an excellent forward indicator of US Housing market conditions (lumber market data is updated more frequently than housing data). Read this as: falling interest rates and higher household income result in more new mortgages and more new home building. Naturally a steady increase in the housing market, with US Housing starts hitting their highest rate since December 2006, results in lumber demand that can drive prices up.
A shift in the mix of required wood is shifting though, as a higher ratio of multi-family to single family homes is changing the residential landscape. 2×6 dimensional lumber and studs are experiencing a greater rate of increase than 2×4, as building code for multi-family housing specifies their use. Similarly, 9’ and 10’ lengths of precut studs (required for ceiling heights in multi-family and mixed-use spaces) are increasing at a faster rate than other lengths.
Lumber follows the ups and downs of both the US bond market as well as changes in interest rates, generally making it an excellent forward indicator of US Housing market conditions (lumber market data is updated more frequently than housing data). Read this as: falling interest rates and higher household income result in more new mortgages and more new home building. Naturally a steady increase in the housing market, with US Housing starts hitting their highest rate since December 2006, results in lumber demand that can drive prices up.
A shift in the mix of required wood is shifting though, as a higher ratio of multi-family to single family homes is changing the residential landscape. 2×6 dimensional lumber and studs are experiencing a greater rate of increase than 2×4, as building code for multi-family housing specifies their use. Similarly, 9’ and 10’ lengths of precut studs (required for ceiling heights in multi-family and mixed-use spaces) are increasing at a faster rate than other lengths.
Recent Escalation
Acceleration in the rate of increase during recent weeks comes as mill curtailments of past months are finally starting to impact the market. This limit on production has been worsened by a seasonal spike happening earlier and hitting harder than anticipated. Mild winter months in much of the US have allowed for more building to take place than what is typical (with exception of the soggy South), causing an increase in demand on a tighter supply of on-ground lumber (both dimensional and studs). European imports, that had helped to stabilize the market, are also becoming more difficult to source and are experiencing rising prices.
Transportation issues have also created a challenge for Canadian mills. Some regions of Canada had been experiencing harsh weather, causing a delay and piling up of unshipped orders. Others face an unrelated, yet escalating, political impact as pipeline protestors recognize the power of setting up blockades on rail lines, economically critical infrastructure. While the Canadian government views resolution of this issue a priority, it’s not only caused massive reroutes of Eastern/Western SPF and OSB this week, but also decreased the availability of empty cars to load orders.
Plan Your Future Lumber Purchases
We don’t anticipate pricing to approach the all-time high of $639 (May 2018), but we do expect lumber prices to continue rising in the short term. If you have projects planned for completion through the end of April, purchase ASAP.
As weather patterns shift, speculative lifts on mill curtailments play out, and import timing and volume improve; there’s hope that this rally will shows signs of relenting as we approach summer.
Acceleration in the rate of increase during recent weeks comes as mill curtailments of past months are finally starting to impact the market. This limit on production has been worsened by a seasonal spike happening earlier and hitting harder than anticipated. Mild winter months in much of the US have allowed for more building to take place than what is typical (with exception of the soggy South), causing an increase in demand on a tighter supply of on-ground lumber (both dimensional and studs). European imports, that had helped to stabilize the market, are also becoming more difficult to source and are experiencing rising prices.
Transportation issues have also created a challenge for Canadian mills. Some regions of Canada had been experiencing harsh weather, causing a delay and piling up of unshipped orders. Others face an unrelated, yet escalating, political impact as pipeline protestors recognize the power of setting up blockades on rail lines, economically critical infrastructure. While the Canadian government views resolution of this issue a priority, it’s not only caused massive reroutes of Eastern/Western SPF and OSB this week, but also decreased the availability of empty cars to load orders.
Plan Your Future Lumber Purchases
We don’t anticipate pricing to approach the all-time high of $639 (May 2018), but we do expect lumber prices to continue rising in the short term. If you have projects planned for completion through the end of April, purchase ASAP.
As weather patterns shift, speculative lifts on mill curtailments play out, and import timing and volume improve; there’s hope that this rally will shows signs of relenting as we approach summer.
