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US lumber prices to rise

It’s not just a buoyant day for equities – China excluded – but lumber prices are on the up. Source: Fast FT

News of a rise in new home sales in the US last month has helped push lumber prices up 2.5% to US$246.10 per 1000 board feet. And the advance in lumber, which is used in the building of frames for homes and is down about 26% this year, should pick up speed, according to a forecast from Capital Economics.

Its analysts reckon lumber is set “for a strong recovery” which will leave prices at US$360 per US$1000 board feet by the end of the year.

That’s up 45% from current levels.

That would be a robust end to what’s been a testing 2015 for lumber prices.

A rise in imports and weak constuction following another severe winter pushed prices lower at the start of the year.

That downward pressure was deepened by a drop in new home sales and single family housing starts in June – a key season for the housing market.

More recently, concerns about the health of the Chinese economy, which is the top lumber export market for the US, further exacerbated pressures.

So what’s behind Capital Economics call for a recovery?

First, they point out that single family starts (or single homes) in the US, which is more important for lumber demand that multifamily starts (or apartments), rose nearly 13% in July from the previous month.

“Given the strong US labour market and looser credit conditions, we think housing starts will continue to rise,” said Hamish Smith, commodities economist at Capital Economics.