“Wet weather or heavy snowstorms can disrupt the supply chain, both in terms of obtaining raw materials and transporting them to the factory and the lumber customer. Wildfires can burn down trees or other other problems that make it difficult to retrieve them “Bardon continued.
It’s understandably difficult to forecast how the lumber market will grow and whether prices will stabilize or continue to fluctuate in peaks and troughs, but Leonard believes demand will continue to drive prices.
“When demand for lumber slows, prices will stabilize. Prices will reduce as logistics improve, but the market will never be able to keep up with increased demand due to logging. As we approach closer to summer, prices will drop, but there is still a chance that they could rise again if demand increases “he stated
What are the prospects for lumber pricing in the future?
When COVID-19 first hit in early 2020, most timber suppliers cut production, assuming that the broader economic environment caused by widespread lockdowns and uncertainty would delay building activity and, as a result, diminish demand for housesand, as a result, wood.
Instead, home purchases and remodeling increased as a result of the development of remote work, which coincided with the entry of millennials into their peak home-buying years, creating a perfect storm that the lumber sector had not anticipated. Construction didn’t slow down though, since the industry was immediately designated “vital” by regulators.
In 2020, prices for the critical home-building commodity skyrocketed as a result of this. However, by mid-2021, the price of lumber had plummeted as the industry’s output had stabilized.
The recent timber price increase, according to David Logan, senior economist at the National Association of Home Builders (NAHB), is due to many factors:
- Supply chain constraints for framing kits are causing more builders to postpone their projects.
- In November 2021, severe flooding took away some infrastructure in southern British Columbia and Washington (two major lumber production areas).
High lumber tariffs, together with growing home demand, are also causing the spike in timber prices, according to Zach Fritz, an economist with Associated Builders and Contractors.
The US Department of Commerce said in November 2021 that tariffs on softwood timber imported from Canada would rise from roughly 9% to 17.9% in 2022. Fritz pointed out that this is a little reduction from the previous administration’s 20 percent lumber tariffs, which were reduced to 9% in December 2020 in the face of historically high lumber prices.
Demand for new housing
Housing starts also hit their highest level since September 2006 in November 2021. “Several factors, including the influx of millennials into the housing market, retirees downsizing, Americans migrating in large numbers from the Northeast to the South and Southwest, and pandemic-induced shifts from urban to suburban living, have boosted demand for new housing to levels not seen since the mid-2000s,” Fritz said. “Because lumber is a key component of residential building, accounting for roughly one-sixth of the total cost of a home, demand has skyrocketed.”
The trends that are driving up lumber prices aren’t going away anytime soon. The lumber tariff issue between the US and Canada stretches back to the early 1980s. Permits for new residential building have remained near their highest level since 2006, despite historically low housing inventories.
“With tariffs in place and home demand expected to outstrip supply for some time,” Fritz added, “expect lumber prices to remain high for the foreseeable future.”
The United States uses lumber to construct more than 90% of its single-family homes, a much larger percentage than the rest of the globe. In the United Kingdom, for example, only approximately 20% of single-family homes are constructed with lumber. This trend will not reverse very soon, according to Fritz, because the two main substitutessteel and concretehave also suffered rapid price hikes in recent months.
Board feet prices 254% higher than pre-COVID price levels
Logan noted at the time of writing, “Futures markets anticipate that lumber will remain above $1,000 per thousand board feet until September 2022.” Logan and other industry observers can only point to futures pricing because NAHB does not publicly forecast commodities prices.
The huge increase in the cost of building materials has resulted in project delays and cancellations across the country. According to Logan, the data shows that the number of single-family units sanctioned but not started is at its highest level since April 2007. Furthermore, single-family starts have climbed by 31% since January 2018, while the number of units permitted but not started has increased by 70%.
Logan went on to say that interest rates, which have already begun to climb this year, are anticipated to rise further through 2022, creating a headwind for the construction industry, which has benefited from supportive monetary policy since the outbreak began.
Are lumber futures on the rise?
Lumber futures LBH22 LB00, up -3.94 percent in 2020, reached a high of $1,670.50 per 1,000 board feet on May 7, 2021, before hitting an intraday low of $448 on August 7, 2021.
Will the price of lumber fall in 2022?
The United States is the primary driver of softwood lumber demand in North America. Softwood lumber consumption in the United States increased to 50.93 BBF in 2020, and we expect it to rise to 52.76 BBF in 2021, the highest level since 2006, and 53.87 BBF in 2022. Residential-improvement sectors, which will benefit from years of robust home sales, drove growth in Canadian lumber consumption. However, as the Canadian currency strengthens, the manufacturing sector will be harmed, thus we predict consumption to decline year over year from the fourth quarter of 2021 to the second quarter of 2022, before rebounding throughout the balance of the forecast period.
North American offshore exports fell by about 24% year over year between the second quarter of 2019 and the second quarter of 2021. As the global economy strengthened last year, we expect offshore lumber exports from North America to fall slightly less in 2021, perhaps 9.8% less than in 2020. (compared with a 25.7 per cent decline the previous year). Because of robust domestic demand, high prices, and competition from Europe, we estimate export growth to continue poor, decreasing another 1.6 percent in 2022.
The supply of lumber is made up of domestic capacity as well as imports. Early in 2020Q2, lumber demand and prices plummeted. Mills cut capex as a result of this, as well as the uncertainty surrounding the COVID-19-induced slump. As a result, capacity fell marginally in 2020. Pricing rose unexpectedly, and mills began investing to take advantage of the higher prices. This will result in a 1% increase in capacity in 2021-22. Over the next two years, significant additional capacity and expansions at existing facilities have been announced. Due to constraints on machinery manufacturers and mill labor, this capacity will ramp up slowly.
Offshore imports into the United States climbed nearly 40% in 2020, and with demand and prices soaring in early 2021, offshore imports are predicted to rise another 13% in 2021. In 2022, we anticipate a 9% increase in growth.
The predicted surge in imports is due to multiple factors, including strong North American consumption and high pricing; capacity constraints in Canada; ample, low-cost fiber supplies in central Europe; and the strong US currency. For a thorough description of the fiber supply problem in central Europe, see the FEA research Central European Beetle and Windstorm Timber Disaster.
Due to a combination of declining residential-improvement markets and the regular seasonal reduction in end-use market activity, demand for U.S. mills (consumption plus exports minus imports) has fallen off its seasonal peak, and we estimate demand for U.S. mills to continue weak through February. Putting it all together, we predict total demand at North American mills to rebound by 3.3 percent last year after being unchanged the previous year, and to grow by another 1.1 percent this year.
In the first half of 2020, capital expenditures came to a halt. Capacity growth has stalled until 2021 as a result of this. Meanwhile, demand was strong in the first half of 2021, and it expanded rapidly. Operating rates rose to 87 percent for the year as a result of this. In 2022, demand will continue to rise, but capacity expansions following the price spike of 2020-21 will start to come online. As a result, the demand/capacity ratio will stay unchanged in 2022, at 87 percent.
We may now turn our attention to lumber prices after putting all of this together. Prices rose at the conclusion of the year. Part of this was due to severe supply delays caused by British Columbia’s unusually wet weather. However, part of the rise in costs was due to strong demand as warm weather across the country extended the building season, and dealers rushed to replace inventory, fearful of another price spike similar to the spring of 2021. The weather’s impacts will be transient. However, we expect prices to remain high through February for a variety of reasons.
Inventories are still low across the supply chain, and dealers will want to start replenishing them before the construction season begins in March-April across much of North America. Mills took a break over the holidays as well. Finally, the all-too-fresh memories of $1,000-plus pricing will keep purchasers in the market while output is hampered by log- and labor-supply shortages.
Supply restrictions in the United States’ South will boost lumber prices in early 2022. Mill closures in British Columbia were primarily compensated for by capacity expansions in the United States South. Wet weather and labor shortages, on the other hand, have hampered log availability and mill output. We anticipate a reduction in soil moisture content over the winter, with a La Nia year in 2021-22. This will make getting into the woods a little easier. Labor shortages are expected to last longer this year, since many people who left the industry at the start of the COVID-19 pandemic have yet to return, and we expect labor concerns to continue to stymie production.
While we expect prices to stay high into early 2022, we do not expect them to return to the levels seen in 2021. Capacity additions in the United States’ South, somewhat higher inventory levels heading into the year, and weaker residential-improvement activity will likely preclude a run like the one we experienced in 2021. Furthermore, we estimate prices to fall in the second quarter as dealers work through their stockpiles built in late 2021 and early 2022. We foresee another round of buying in the third quarter as residential-construction markets remain strong seasonally and cyclically; however, as more low-cost southern pine production comes online, prices in the second half of 2022 will average lower than in the first half of the year. In 2022, we predict the RLFLCI will average 645 for the year.
In the end, we predict lumber prices to remain erratic in 2022. There are several causes for this, the most important of which is COVID-19’s residual effects. Following the first outbreak of COVID-19 in the United States, a lack of buying and production drove dealer stocks to new lows. As demand climbed, there was insufficient inventory in the system to meet the growing demand. As a result, prices skyrocketed to new highs. Dealers stopped buying lumber at such high prices, causing their stocks to fall again. Low stockpiles will almost certainly force dealers to buy wood at higher prices than they wish, and those higher costs will encourage dealers to cease buying as soon as their immediate needs are met, causing prices to fall significantly. Over the next year, this cycle will repeat itself, resulting in extremely volatile prices.
Forest Economic Advisors (FEA) LLC, the main source for North American wood products analysis and information, has Paul Jannke as a principal. North American lumber markets are Paul’s main area of expertise. Paul is the industry’s top economic analyst, having spent nearly 30 years evaluating lumber markets and giving dependable, intelligent forecasts. He wrote the FEA publications Lumber Advisor and Lumber Quarterly Forecasting Service.
Will the price of lumber fall in 2021?
- By 2022 or 2023, lumber prices are likely to return to their previous levels. This does not, however, imply that the lower prices are simply transitory.
- Once lumber prices stabilize, the price reduction will pave the path for new technologies and construction techniques. This could result in a number of positive developments for American households.
- Even if timber costs rise again in the future, homebuilders should expect to see a considerable increase in the affordability of housing and other construction projects for years after 2021.
- Outside of the property sector, the price decline has created new business prospects. Lumber prices have decreased to the point that they are now cheaper for industrial usage than some forms of paper and plastic. This means that switching from old methods will save firms a large amount of money on raw materials.
- Many experts across the country have dubbed 2021 “The Year of Timber,” predicting that the lumber trade will be the most critical element in determining the housing market’s future.
- Lumber prices are projected to climb once more, but only slightly. This indicates that if homebuilders and real estate developers take advantage of their cheap rates now, 2021 might be a terrific year for them.
- This decrease in lumber costs is good news for the housing market, and it does not portend negative news for the rest of 2021.
- Lumber prices are likely to recover to former levels by 2022 at the earliest, giving homebuilders and real estate developers plenty of time to take advantage of the current low pricing before they skyrocket.
Why has the cost of lumber increased?
Lumber prices are increasing once again, upsetting the housing industry and threatening house affordability, after a few months of moderated costs last spring and summer.
According to NAHB standard estimates of timber used to build the average home, lumber costs have nearly quadrupled in the last four months, leading the price of an average new single-family home to rise by more than $18,600. This increase in lumber prices has increased the market value of the average new multifamily housing by roughly $7,300, resulting in households paying $67 more per month to rent a new apartment.
According to Random Lengths, the price of framing timber has surpassed $1,000 per thousand board feet as of Dec. 29, a 167 percent rise since late August.
The softwood lumber that goes into the average new home, as collected in the Builder Practices Survey performed by Home Innovation Research Labs, was used by NAHB to compute these average home price increases. Any softwood used in structural framing (beams, joists, headers, rafters, and trusses), sheathing, flooring, and underlayment, interior wall and ceiling finishing, cabinets, doors, windows, roofing, siding, soffit and fascia, and exterior features such as garages, porches, decks, railing, fences, and landscape walls are all included.
Why Lumber Prices Have Surged
The unprecedented price volatility in the lumber market began in April 2020, when the COVID-19 pandemic spread and sawmills slowed production in expectation of lower demand. Lumber mills did not scale up output in response to the fact that housing weathered the storm considerably better than expected and demand remained robust in the months that followed.
Lumber prices peaked at a record-breaking $1,500 per thousand board feet in May 2021, before gradually declining until late August, due to sawmills’ sluggish response and a significant increase in demand from do-it-yourselfers and big box stores during the pandemic.
- Increased price volatility due to a doubling of duties on Canadian lumber imports into the US market.
- Summer wildfire season in the western United States and British Columbia has been exceptionally active.
NAHB Actions
While lumber prices remain stubbornly high, NAHB continues to work tirelessly with the White House, Congress, and lumber producers to alleviate supply chain interruptions, increase lumber production, and lower material prices. This is the association’s top priority. NAHB has made the following steps in the last few weeks:
- 84 members of Congress wrote to Commerce Secretary Gina Raimondo in late December at NAHB’s request, expressing grave concern about the Commerce Department’s recent decision to double tariffs on softwood lumber goods from Canada. The letter also urges the US to resume negotiations with Canada on a new softwood lumber trade agreement.
- The NAHB met with top Canadian officials at the Canadian embassy in Washington in early December to discuss major softwood lumber concerns, including the urgent need to initiate negotiations on a new softwood lumber deal that would eliminate tariffs.
- On Dec. 3, NAHB issued a letter to President Biden, urging him to work with Canada on a new softwood lumber accord and increase American lumber production to battle high lumber costs.
- Over the holiday season, NAHB engaged its grassroots by having members call or write their members of Congress, urging them to tell President Biden to negotiate an updated softwood lumber agreement with Canada and increase U.S. lumber production by harvesting more timber from U.S. forest lands through BuilderLink.
- Sens. Jeanne Shaheen (D-NH) and Jerry Moran (R-Kan.) wrote to Commerce Secretary Gina Raimondo in late November to express their opposition to the Commerce Department’s decision to double tariffs on Canadian lumber imports into the United States, citing NAHB’s assertion that historically high lumber and building material prices continue to be a headwind for the housing sector in the United States.
- On October 20, NAHB Chairman Chuck Fowke spoke before Congress, urging lawmakers to address supply chain constraints that are compounding the housing affordability crisis.
- On Oct. 6, NAHB wrote to Biden, urging him to address lumber and building material supply chain bottlenecks that are driving up construction prices and threatening housing affordability.
Government Affairs, Communications, Economics, and Legal the NAHB advocacy team continues to work relentlessly on all fronts to develop solutions that will secure a long-term and consistent supply of timber and other construction supplies for the home building industry at a reasonable price.
Will the price of steel fall in 2022?
In a recent interview with S&P Global Platts, Phil Gibbs, stock research analyst at KeyBanc Capital Markets, said, “I think the bottom line is there was a scarcity in 2021.” “Aggressive normalization is expected next year, particularly in spot pricing as supply becomes more available,” says the analyst.
According to Platts pricing statistics, US HRC spot prices entered 2021 soaring, already around an all-time high of $1,009/st. In the final week of 2020, the price broke through the “grand a band” barrier, then soared another 94 percent to an all-time high of $1,960/st in late September.
Price erosion began in the third quarter, however domestic HRC spot prices remained over $1,900/st until mid-October, when they fell by 24% from their peak in the last months of 2021.
In a recent interview with Platts, UBS analyst Andreas Bokkenheuser said, “The US steel market is currently in surplus, after being in deficit for the past year and a half, and that surplus will most certainly grow larger next year.”
IHS Markit’s director of pricing and purchasing, John Anton, predicts that spot prices for hot-rolled coil will be significantly lower in 2022 than they were in 2021, when sheet prices were triple the 10-year average from 2010 to 2019. However, despite falling, he predicts that US sheet steel costs would remain high in 2022 when compared to the historical average.
“Prices are falling, and they are falling quickly,” Anton added, “but we still estimate the annual average will be 75 percent higher than the 10-year average.”
He believes that a reduction in cold-rolled coil spot pricing will be two to three months behind HRC before falling as precipitously.
Domestic lead times have decreased as output has increased and demand has stabilized, according to analysts at BofA Securities in their 2022 Metals and Mining Outlook. This trend is projected to continue through 2022.
As of Dec. 29, Platts’ HRC lead time average was 3.9 weeks, the lowest since May 2020 and down from an average of 8.5 weeks in July 2021.
In early 2021, when domestic mills were reluctant to restore capacity as the economy recovered from the early effects of the pandemic, steel customers experienced a state of hysteria and terror, according to Gibbs.
“I believe the car companies acquired more steel than they needed because they expected to make up production at some point, but that never happened,” Gibbs said. “All of these things, plus pent-up demand following the election, service center restocking… automobiles participating actively in the first half, are pretty much the same reasons that drove us up in 2021 and will drive us down in 2022.”
Steel demand expectations for 2022 are being impacted by the stimulus that was pushed into the market to allow the US to recover from the effects of the coronavirus pandemic, according to Bokkenheuser.
“We’re seeing the tapering, and the pent-up demand for steel following the Covid stimulus is now fizzling out,” he added. “Effectively, demand growth is decelerating, not only in the US, but globally.”
Imports have also been on the rise in the United States in late 2021, putting additional downward pressure on domestic pricing.
“The lack of imports is one of the ways they got away with such exorbitant costs,” Anton explained. “In 2022, there will be no shortage of imports, so we won’t see the same high pricing.”
As distributors sell off steel purchased at higher prices, falling mill prices will be a big worry in 2022.
“It’s going to be a difficult environment for distributors with a lot of hot-rolled exposure to manage through,” Gibbs said. “No one ever thought they’d see those types of gains in inventory over the last several months, and they have to make sure they’re properly managing through this as best they can.”
The cash flow from inventory disposal will be wonderful, but if distributors aren’t hedged, 2022 will be a challenging year, he said.
“I think there’s been a little bit of denial for the previous several weeks because no one wants to accept the steel they just bought is already partly submerged,” Gibbs said.
What is the state of lumber prices?
Because the price data for softwood lumber used in framing applications is generally quoted using the Random Lengths Framing Lumber Composite Price or lumber futures pricesneither of which are inflation-adjustedthe majority of analyses of lumber price trends and levels fail to account for inflation. After adjusting for inflation, the inflation-adjusted price of timber established records in both 2020 and 2021, despite the fact that historical price discrepancies are less in real terms than nominal.
Shortly after the pandemic hit the United States in early 2020, lumber costs began to skyrocket.
Between April and September, the Random Lengths Framing Lumber Composite Price, an industry standard, climbed by almost 175%, with all-time highs in each of the last nine weeks. The FLCP hit $1,500 per thousand board feet ($1,500/mbf) in May 2021, roughly three times the pre-pandemic high. Framing lumber prices averaged around $550 in 2020 and nearly $850 in 2021, both new annual highs.
Even after accounting for inflation, the average price of framing lumber in 2021 was 17 percent higher than its 25-year average, breaking the previous high set in 1996. The FLCP data has been modified using the softwood lumber Producer Price Index (PPI) from the US Bureau of Labor Statistics.
The nominal prices can also be deflated using the most important sub-indexthe PPI for softwood cut stock and dimensionbecause the PPI for softwood lumber is formed from component series.
This draws attention to the fact that prices in both 2020 and 2021 were extraordinary. In 2020 and 2021, the average actual price of lumber topped the previous high by 4.3 percent and 2.4 percent, respectively. Real prices were 37 percent higher than the historical norm over that 24-month period.
Since late August 2021, the Random Lengths Framing Lumber Composite Price has more than tripled, and front-month lumber futures have roughly doubled.
Although mill prices have softened slightly in recent weeks, the typical builder will need to see a continuous downward trend to see any respite.
Builders and homeowners are the last to benefit from lower lumber prices due to the mechanics of the supply chain.
Unfortunately, despite a surge in housing starts, the softwood lumber industry in the United States has seen little growth in output during the last 18 months.
Increased sawmill output is the only structural way to avert another questionable price record as long as house demand remains strong.
Why are lumber futures prices dropping?
Little’s remarks On Thursday, lumber fell to a low of $480.40 per thousand board feet, the lowest level since July 8, 2020, when it fell to $465 per thousand board feet. After plummeting by more than 9%, lumber prices are on course for their 13th consecutive weekly loss.
Lumber futures fell by more than 40% in June, marking the worst month on record since 1978. After epidemic shutdowns, Americans began going away from their houses rather than pursuing renovation and building projects, which caused the decline. Lumber prices touched an all-time high of $1,670.50 per thousand board feet on a closing level earlier this year in May, following a catastrophic low in April 2020.
Little stated on Thursday that the lumber market is currently “in this balance stage or hunt for equilibrium.”
Little explained, “What we’re finding is that the support level that follows the bottom end of that continuous trend pre-Covid is very, very positive.” “With the predicted demand that we are currently seeing, it would also make a lot of us in the timber sector feel much more comfortable going and rebuilding inventories here for the second part of this year.”
Why are lumber futures increasing again?
The persisting epidemic dynamicselevated demand and worker shortagesthat continue to bog down the broader supply chain are the reason lumber prices are vulnerable to this next spike.