Lumber Prices Move Sharply Higher on Rising Demand and Supply Constraints

Filed in Economics by on May 18, 2020 8 Comments

lumber

Rising demand stemming from a surge of do-it-yourself projects from consumers working at home coupled with restricted supply due to lumber mills operating at a diminished capacity have led to a recent upsurge in lumber prices. Prices topped $400 per thousand board feet in mid-May.

Framing lumber prices have increased 13% since May 1 — the largest two-week increase in over a decade and the first increase greater than 10% since the start of the U.S.-Canada Softwood Lumber Dispute in early 2017.

This recent increase in lumber prices comes at a time when the government reported backward-looking data that shows building material prices posted a record decline in April — during the height of the pandemic and before many states rescinded stay-at-home orders and began phased re-openings of local economies.

Related factors driving this recent increase in lumber prices include:

  • Rising demand from big box retailers — driven by do-it-yourself activity and the fact that building supply stores have been designated as “essential businesses” across the nation — has limited the supply available to traders, wholesalers and distributors; and
  • Slowing mill production as home building activity dropped sharply during the early weeks of the outbreak.

The recent price increase has been especially acute in Southern Yellow Pine (SYP) dimension lumber, with SYP 2×4 prices climbing nearly 50% since mid-April. The four-week increase is the largest in at least 25 years (weekly data first became available in 1995), topping the prior record of 30% set in 2003.

Lumber demand tends to be a reliable leading indicator of residential construction activity, thus the recent price hikes due to increased demand coupled with reduced mill capacity should be viewed as a sign that mills must ramp up production as the home building industry continues into the spring home buying season.

Meanwhile, builders should prepare accordingly and expect that the lumber price rebounds during the past couple of weeks are likely to continue.

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Comments (8)

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  1. B. Lemire says:

    I think attributing increased lumber prices on “Rising demand stemming from a surge of do-it-yourself projects from consumers working at home” is ludicrous. Nor do I believe the culprit is “restricted supply due to lumber mills operating at a diminished capacity”. More likely, it is the companies’ need to replenish profit margins due to reduced demand caused by mandated shutdowns.

    • Dirk Van Vuren says:

      Amen Brother

    • B. D says:

      As someone who works in the supply chain I can assure you there’s a shortage, Mills for some time were working at 50-65% capacity, stopped logging and some had week long shut downs. Roofing and PVC products are having similar issues. Normally i’d agree with your statement but it couldn’t be further from the truth this time. Mills are passing up orders and sending customers to their competition. From Framing Lumber to PT to Cedar, its all the same. Many other wood products coming from oversees are seeing extended shipping lead-times because other products (anything made overseas) are now willing to pay more for shipping leaving the the Mill/importer having to adjust pricing to get product on ships, trucks or rails. Simple case of supply and demand

  2. Tracy says:

    I can’t believe how high the lumber prices are. Customers are choosing not to build and affecting contract workers because of the spikes in cost. The fact lumber keeps increasing with the excuse of supply is just that an excuse. The government better look at this before even more Contractors are effected and run out of work.

  3. Joe the carpenter says:

    Nailed it.

  4. David Neal says:

    So let me tell you how it really effects people. Typically with interest rates stupidly low its a great time to sell your house to take the profit and build. Except for Covid. Let me explain, I’ve built 3 houses over my life time. Always timing the market to make my money work for me. So I bought 4 acres with plenty of pines and hardwood, It was very difficult to find some to clear cut the timber. Here’s why, several loggers have shutdown because of the mills only able to take limit loads (6) per day and the price per load is very low. Directly effecting the logger. To confirm what I’m saying, I have a friend who works at a lumber producing mill and he said they can’t keep up because they are only allowed a certain number of workers because they’re not essential and covid rules; social distancing. So the bottle neck is the mills not being allowed to run at full capability. The lumber suppliers/ sellers reap the reward of profitability due to the lack of lumber availability. So who is to blame?

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