- Lumber prices are on the rise again and have doubled from summer lows.
- A confluence of factors puts upward pressure on the burning product, but experts say the wood will normalize.
- Lumber futures rose for the fifth straight session on Friday, reaching $ 930 per thousand board feet.
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Lumber prices have doubled from summer lows after a confluence of factors put upward pressure on the burning product, but some normalization may be underway soon.
Lumber futures rose for the fifth straight session on Friday, hitting a six-month high of $ 930 per thousand board feet and gaining 21% for the week. Yet they are 45% below their record high of $ 1,711 reached in May.
Analysts have highlighted four key factors contributing to the recent spike.
1. Floods in Canada
The root cause is severe flooding in British Columbia that hampered the operations of West Fraser Timber, one of Canada’s largest lumber producers, according to Ross Price, chief financial officer of the commodities trading platform. Mickey Group premieres.
On November 30, West Fraser said the natural disaster caused transportation disruptions on its rail and road routes, including limiting access to ports for overseas shipments.
“It closed roads and forced one of the world’s largest timber producers to suspend shipments,” Price told Insider, adding that the United States gets most of its timber supply from Canada. “From my perspective, it doesn’t make a lot of sense for a supplier to produce more than they can actually ship right now.”
Construction companies hoarding materials to avoid shortages compound this problem, said Vanessa Miller, a partner at international law firm Foley & Lardner.
“It actually creates the same kind of shortage that we saw at the start of the pandemic,” she told Insider, noting the infamous toilet paper stockpiling the United States saw last year despite the absence of a real shortage.
If the lumber supply chain worked properly, the price increases wouldn’t be so dramatic, Miller added.
3. US tariffs
A trade dispute has been added to lumber prices, in which the United States has accused Canadian suppliers of dumping. Late last month, the Commerce Department confirmed it would impose a tariff of almost 18% on imports by Canadian softwood lumber producers in 2022, more than double the rate of 8, 99% under the Trump administration.
The Biden administration initially unveiled the plan in May, forcing some yards to stock up and increase their orders before tariffs went into effect.
4. The booming real estate market
The sustained and high emphasis on building and improving housing since the start of the pandemic is tied to all of these.
As the Federal Reserve has started to curb bond buying, its ongoing emergency stimulus policies continue to keep mortgage rates low, fueling new demand in the housing sector. And with the work-from-home trend continuing, Americans still feel free to seek out new homes in new markets.
Why is another downturn likely
Traders can expect lumber prices to recede in the near term as factories come back online and consumer behavior – as well as overall economic activity – returns to normal.
Still, don’t expect prices to drop back to pre-pandemic levels, David Russell, vice president of market intelligence at TradeStation Group, an online brokerage. But the likelihood of a return to May’s all-time highs is “also likely to be excessive,” he told Insider.
Instead, he sees lumber prices hovering around $ 500 to $ 600 per thousand board feet, about 45% below current levels.
“It’s the aftershock of this huge earthquake,” Russel said, referring to the price hike in the spring. “After that, we’ll see the volatility go down and things will start to stabilize.”