“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
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.
Are lumber prices expected to rise again?
- Lumber prices began growing again in December after falling dramatically from a record high in May of last year.
- According to Random Lengths, they are now around 22% lower than their high, but still roughly three times their typical pre-pandemic price.
- According to the National Association of Home Builders, the recent price increase increased the cost of a newly constructed home by more than $18,600.
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.
Will the price of lumber drop in 2022?
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.
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.
Why are lumber futures increasing once more?
The Canadian forestry company West Fraser Timber Co. Ltd stated in November that weekly exports in Western Canada had dropped by as much as 30%. Because Canadian woods and lumber mills supplied more than a quarter of the lumber to the American market, these interruptions had a significant impact in the United States.
Another environmental concern is the beetle infestation that has plagued Canada since the 1990s. Mountain pine beetles bury their eggs beneath the bark of softwood trees by females. Their larvae eat away at the tree until it dies over time. Mountain pine beetle outbreaks resulted in the loss of more than 750 million cubic tons of pine wood, according to the Canadian Forest Service.
Increased tariffs
An increase in tariffs on Canadian timber imports into the United States is one of the most major economic factors driving higher lumber prices. The US Commerce Department boosted taxes on Canadian softwood imports to 17.99 percent on November 24th, more than doubling the previous amount. The construction industry in the United States was outraged by this.
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.”
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 projections for 2022 are being impacted by the stimulus that was placed into the market to allow the US to recover from the consequences 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 high prices,” 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.
Will timber prices in the United Kingdom fall?
For the first time since September 2020, construction material prices have remained unchanged.
In 2021, material costs in the building sector skyrocketed, forcing some projects to be retrenched and businesses to fail.
However, according to the latest statistics from the Department for Business, Energy and Industrial Strategy, overall prices did not rise in the month of November 2021. (BEIS). The most recent month in which material costs did not grow was September 2020, when they fell by 0.1% from the previous month.
Steel and timber, two of the components expected to face the highest price increases in 2021, both fell in price over that time. Imported sawn or planed wood costs fell by 7.6%, while fabricated structural steel prices fell by 0.3 percent month over month. However, imported sawn and planed wood is still 52.4 percent more expensive than a year ago, and steel is 66 percent more expensive in November 2020 than it was a year ago.
Cement and plywood prices increased by 0.6 percent and 0.7 percent, respectively, in November compared to October.