With reports of lumber futures prices dropping, lumber customers are expecting to see lower prices at lumber yards now but that’s not happening yet.
Demand Still Outpaces Supply
The demand for lumber is still through the roof. From home builders to professional contractors, to Do-It-Yourselfer’s, lumber is being snatched up as soon as it hits the racks. Stores and lumber yards simply can’t stay stocked. There’s a complex supply chain system of growers, mills, treaters, truckers, and distributors trying to keep up with that, and each of part of the system has it’s own supply and demand challenges that keep costs high.
Supply is Increasing But Not Fast Enough
The supply of lumber is the highest it has been in 13 years – but is still not enough to keep up with demand – and it is expected to increase roughly another 5% is coming, according to Business Insider. Additionally, lumber manufacturers are investing in new production facilities to increase supply but those plants will not be online in 2021.
The planned increases in supply are the primary reasons why lumber futures are dropping. However, “futures” are speculation about market prices in the future and do not mean current lower retail prices.
Why Demand (and Prices) Will Remain High for a While
Two experts at Fastmarkets RISI explained 6 reasons why demand is expected to remain high, which are summarized well in an article in Markets Insider. The reasons they shared are as follows:
1. A Housing Market on Fire: The demand for housing is at its highest level since 2006 due to record-low mortgage rates, record-low home inventories, millennials hitting home-buying age, and accelerating shift to the suburbs and lower-cost housing markets.
2. A Boom in Renovations and DIY Projects: Many stimulus checks were applied to home projects, remote work led to the need for home offices, and discretionary income normally reserved for travel and eating out went to home projects.
3. High Demand for All Wood Products: In addition to houses and home office additions, demand is also high for furniture from couches to desks, and other furniture.
4. Lagging Industry Supply: Simply put, while suppliers are producing more wood products, they still are not expected to keep up with demand.
5. A Supply Chain in Disarray: Think labor shortages, truck shortages, and inventory shortages. If you’re a lumber buyer and you don’t have any extra inventory in your yard to fill a current order then you’ll be willing to pay the wholesaler more to fill the order. Labor costs more at every level – from sawyers to millworkers to drivers to forklift drivers.
6. Long-term Capacity Constraints: The industry was hit with natural and financial hardships that reduced overall supply capacity. Pine beetles and wildfires reduced production in Canada, regulations and wildfires hampered capacity in the Pacific Northwest, and the 2008 financial crisis led to a 20% cut in production capacity from which the industry has not returned. This all happened before the current record-breaking demand increase.
What About Treated Wood?
Unfortunately, treated lumber and timbers are subject to the same supply chain constraints as regular wood – and, sometimes, even more so due to the additional processing and transport required for pressure-treating wood.
What Can Be Done?
Some builders and project owners are finding alternative building materials to be more cost-effective as well as more convenient during the current constraints.
American Pole and Timber is a 30-year-old custom manufacturer and supplier of structural building materials with established supply chains and sourcing capabilities in addition to a wide range of wood alternatives such as vinyl sheet pilings and vinyl-fiberglass composite pilings. We are leveraging our unmatched custom timber production strengths and unique capabilities to help you get what you need — or to find suitable or superior alternatives.
The general consensus from industry and commodities experts is that prices will flatten for a while and then begin to decline somewhat in 2022.