Lumber prices have climbed dramatically since the year began, primarily because of supply and demand.
A combination of mill closures and shutdowns, fewer loggers going into the woods and poor weather conditions, have created depleted inventories, which in turn have increased prices on the futures market by nearly one-third. For the nation's builders, it's a tough pill to swallow because housing starts have remained listless. Nonetheless, prices have significantly increased.
"Very basically, mills, after several years, finally got production down to the historically low demand levels that we were at," says Shawn Church, editor of Random Lengths, a weekly newsletter based in Eugene, Ore., that has been reporting prices, analyzing markets and examining issues affecting the wood products industry for more than 60 years. "They finally accomplished that and I think those supply-and-demand lines crossed and the price reacted to that.
"I think the industry feels good about the fact that prices have come up from those historical lows, which were at terrible levels in terms of profitability. They were generating a lot of red ink, so to see prices come back some, they feel good about that. However, you're also seeing increases in the logs they have to buy, so that offsets that somewhat. There's also been some thought that this has been a restocking rally - just like the general economy - as dealers and distributors across the country work their inventories down to bare bones and all of them across the country were bringing in some replacement. But collectively that made for a pretty big surge in demand that exceeded what the productions levels had been since late 2009 and that's why we had the surge.
Another factor to keep an eye on is the impact of the earthquake in Chile. Prices on many panel and lumber products in that country have doubled since the Feb. 27 natural disaster.
"I think in some commodities; in terms of plywood, sanded plywood in particular, industrial finger-joint lumber, MDF, moldings, those are some of the areas that are going to be affected by this," notes Church. "In the case of sanded plywood, last year Chile supplied 27 percent of the sanded plywood products consumed in the United States."
- Brian Caldwell