Breaking Market Update: Lumber Market Goes Ballistic

Lumber Market Goes Ballistic

Lumber Index Last 5 Weeks

I realize that our lumber market report came out less than two weeks ago and I am sure all readers heard the message loud and clear – EXPECT VOLATILITY!!! However, the word volatility does not seem to describe what happened to lumber prices since our report aired. EXPLOSIVE seems to better describe the current lumber market. After the 20% surge in pricing that the market experienced from late January through mid-February, markets calmed down for three weeks and gave back about 4% of that increase. The last two weeks of March saw lumber firming, as mills pushed out order files and buyers stepped in to replenish holes in their inventory. Then, the week of April 3rd, the lumber market just exploded, with Random Lengths reporting $60 gains in Western S-P-F and double-digit gains in almost every product. The S-P-F- #2 Stud market, for instance, is up $72 mbf since mid-March. Contract Lumber’s Framing Index is up over $85, or 27%, since March 1st. Of course, blame is being placed squarely on Canadian producer’s shoulders as they continue to hike prices to try and recoup expected losses when the retroactive duty is announced on April 24th. Speculation is rampant as to how much that duty amount will be, but history will tell you that it is fair to assume anywhere between 18-30%. Where it settles after expected exhaustive litigation – only time will tell. But for now, the lumber market has gone ballistic with few willing to speculate what happens next.   

Also complicating issues is the hobbling of lumber shipments due to the availability of rail cars. To help return empty cars more quickly to the mills for reloading, railroads have restricted shipments to “high-velocity” (H-V) rail lines only. These H-V lines do not require switching cars to other railroads that are considered “low-velocity” (L-V) markets for delivery, and helps turn rail cars significantly faster. It is especially affecting Western S-P-F traders who are off the CN Railway’s designated H-V lines. Mills and the railroad are claiming that the restrictions are not impacting pricing but that is certainly debatable. It should only be a short term situation but it couldn’t happen at a worse time given all the uncertainty that is transpiring in the lumber market right now. 

It is frustrating that the US Coalition for Fair Lumber Imports has, once again, pursued trade action against Canadian producers when the supply-demand dynamics of the lumber market were seemingly operating smoothly. And, CFLI recently filed to have DOC adjust when the final duty decisions are announced, trying to align that the two decision be made together. This could seemingly further delay the announcement date and prolong uncertainty. For now, build your budgets and contracts with this volatility in mind. Single-family builders may even want to consider more speculative building programs where you can pass along unexpected price increases easier. Regardless of your strategies to cope, you’d better strap in tight as we are in for a bumpy ride this year.