Bouncing Lumber Market Searching for Direction
Lumber prices are always near the top of the list of builder concerns. The volatile nature of the commodity wood market creates constant anxiety because the large and abrupt swings in the cost of goods cause unforeseen and uncontrollable cost overruns that can take a bite out of already thin profits. So when the lumber market strengthened during April and May with better weather boosting lumber consumption, builders across the country became nervous about where their lumber prices may be heading. But after six weeks of healthy gains the market has softened and seems poised to at least give back some of those recent increases. Lumber buyers are not convinced that a prolonged spike is in our future and are purchasing accordingly, filling holes when needed but not taking significant commodity positions.
Sluggish demand through early spring can be attributed to a lackluster housing market whose activity was greatly impacted by a brutal winter. However, the lumber market did not seem sympathetic to less than anticipated construction activity and prices only receded slightly through the first quarter. Mostly, the lumber market has shown remarkable stability trading in a very narrow $33 mbf range since the beginning of the year. Contract Lumber’s Commodity Price Index* currently stands at its highest level ($354) since last May and has only traded in a slightly expanded range of $44 mbf during that time.
You could best describe the market as being in a quasi-state of equilibrium but it is probably more complex than that. Shipping woes have greatly hampered transportation of both rail cars and trucks throughout North America and mills have been hesitant to accept steep counter offers for their wood when they can’t ship it promptly. We have experienced a trucker’s strike in Vancouver, the Canadian railroad being mandated to prioritizing hauling a bumper harvest of Canadian grain, rail car shortages due to weather issues, an oil industry that is commanding (and paying higher for) equipment, and now the spring season has hit the south and truckers are hauling more lucrative produce runs. Certainly being unable to commit to quick ship lumber helped the mills fend off deeper price concessions during a time of sputtering demand.
When the market saw an uptick for six consecutive weeks, players who were not forced into the game during the run, were at least off the bench and now along the sidelines. They were watching curiously to determine if this market had strength moving forward or were we just experiencing a brief flurry of activity due to improving weather conditions, solid housing activity and relatively low inventory levels. It will be a very curious time over the next 30-45 days to see how this bouncing market plays out. Overall, dealer and builder optimism continues to be high, despite the slow takeoff, so apparently there is plenty of booked business out there.
Aside from the traditional lumber commodity items, other building material pricing has continued to escalate. And these are products, unlike lumber, that once they go up, they seldom come down. Since the beginning of the year, we have seen between a 5 and 12% increase on Asphalt Shingle Roofing, Engineered Wood Products, Wood Fasteners, Wood Adhesives, Exterior Composite Trims, Entry Doors, Interior Doors & Door Hardware, as well as Interior Trim. So just because lumber has been relatively stable doesn’t mean that builder’s costs for materials have remained level.
Of course, influences on commodity pricing are tenuous at best and specific products move more independent of each other than they have anytime in the lumber market’s history. Expect the wrestling match between the supply and demand of wood products to continue during this tentative housing recovery period. Please take advantage of our resources and make sure you consult your Contract Lumber salesperson to get the latest lumber market information available when putting together you building budgets. We have a number of ways to help curb a builder’s level of anxiety.