Consumers will likely see cheaper lumber this summer but shouldn’t expect prepandemic prices, as many retailers will still have leftover stock purchased at higher prices and producers are avoiding flooding the market.
Wholesale lumber prices began dropping in mid-March and then plunged 40% at the end of May, yet industry analysts and retailers say it could take four to six weeks before consumers notice any significant markdown in retail prices.
The general availability of lumber has vastly improved as demand for do-it-yourself projects falters while supply bottlenecks are cleared. The regional shortages that were seen during the lumber mania in 2021 are no longer common.
But many sawmills are scaling back production because their inventories are larger than usual, so don’t expect a glut on the market this summer, wood experts say.
When retail prices do drift down, they are expected to remain sharply higher than the prepandemic levels of 2019. While commodity cycles often stretch over a period of five to six years, wholesale lumber prices have already skyrocketed and then cratered three times over the past two years, including this spring’s downward spiral.
The early stages of the pandemic initially led to a major decline in lumber demand, but in the summer of 2020, people stuck at home launched a boom in do-it-yourself repairs and remodelling. In Spring 2022, however, with the economy opening up, consumers have had more options for spending their disposable income, including trips abroad. That shift in consumer behaviour has left retailers holding lumber inventory that was purchased at higher prices many weeks ago.
The supply chain in Western Canada has been gradually improving in recent months, said Dustin Jalbert, senior economist at Fastmarkets, which publishes Random Lengths, an Oregon-based newsletter that monitors wood markets. “We’ve had a big move in the wholesale price over the last few weeks, but you’re not going to see it right away in retail,” Mr. Jalbert said in an interview. “It’s kind of like gasoline prices, right? When crude prices fall, the gasoline price on the downside at the pump can be kind of sticky.”
Cash prices – what sawmills charge wholesalers – fell 16%, or US$120, in the last week of May to US$630 for 1,000 board feet of two-by-fours made from Western spruce, pine and fir, or SPF, according to Random Lengths. That means cash prices have fallen 55% since the end of March. “The deep drops in prices kept buyers on the sidelines, fearful of further downside potential,” Random Lengths said.
Despite cash prices retreating recently, industry analysts say that with producers mindful about limiting their output, it’s highly unlikely that prices will collapse this summer to levels last seen in 2019, when Western SPF typically sold for US$350 to US$400 for 1,000 board feet.
B.C. producers continue to face logging restrictions, notably in old-growth forests. As Canada’s largest softwood lumber producer, B.C. accounts for 40% of the country’s output and 14% of North American production.
“We will have a new equilibrium for demand and supply, and prices probably will bounce off that – or that’s the logic,” Mr. Jalbert said. Madison’s Lumber Reporter, a Vancouver-based industry newsletter, said demand for Western SPF weakened further last week. “Sawmills kept lowering their asking prices,” Madison’s said in its weekly commentary. On the Chicago Mercantile Exchange, prices for lumber futures for July delivery have tumbled 53% since early March.
“Wood product prices continue to plunge,” CIBC World Markets Inc. analyst Hamir Patel said in a research note. “Trade contacts reported soft demand from big-box stores.”
The U.S. National Association of Home Builders has reiterated its call for the United States to remove duties on Canadian lumber. “Ending the tariffs on Canadian lumber shipments will enable builders to construct more affordable entry-level housing, provide quality rental housing and shore up the national economy,” association chairman Jerry Konter said in a news release.
U.S. Trade Representative Katherine Tai visited Ottawa in May to meet with International Trade Minister Mary Ng, but there were no signs of progress in the long-running lumber dispute. “It doesn’t appear that any headway has been made in recent months toward the U.S. and Canada negotiating a new softwood lumber agreement,” Random Lengths said.
Source: Globe and Mail