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Correction crashes in on US lumber market

After rising to a record high in the United States of over $1500/MBF in May, the Fastmarkets Random Lengths Framing Lumber Composite Price Index has now crashed to under $400/MBF, in line with historical pricing levels we have seen for the industry. Source: Timberbiz

“Ultimately the correction has resulted from a combination of cooling demand for lumber and mills finally being able to sufficiently ramp up production,” Fastmarkets senior economist Dustin Jalbert said.

On the demand front, new housing construction has slowed due to labour and material shortages, forcing home builders in the United States to ration production despite very stronger buyer interest.

Renovation activity has also dropped off as households pivot their spending back to the service side of the economy. With vaccination rates rising in North America, people are becoming more comfortable traveling, going out to eat or attending social gatherings, which means more time and money spent away from the home.

“Sticker shock has also set in for some wood product buyers, putting many home renovation projects on the sidelines,” Mr Jalbert said.

For supply, sawmills struggled to ramp up production in the depths of the pandemic as labour shortages and positive cases at mill operations hampered output just as demand conditions had shifted higher.

As caseloads came off the very elevated peak in the spring, production ramped up significantly in response to record prices and strong demand as mills were better able to add overtime and shifts as the staffing situation improved.

“Now that lumber prices have corrected, we are starting to see buyers step back into the market, which is helping firm the cash market,” Mr Jalbert said.

“Additionally, mill curtailments in response to the collapse in prices, wildfire-related log shortages, a new wave of COVID cases and a potential doubling of lumber duties on Canadian mills by the end of the year will likely contribute to another bounce in lumber prices before the end of the year, further contributing to the record volatility for the industry.”