Lumber Prices Explained

Lumber prices steadied their bullish prices as mill output and supply chain disruptions supported its trend.

While lower demand is present in most regional markets, curtailments and permanent closures of some U.S. and Canadian mills limited the commodity’s global supply. Additionally, the frequent summer wildfires in the Western U.S., Canada, and Brazil pose a significant impact on timber production. 

Also, the ongoing conflict in the Baltic states disrupted lumber exports from Russia. This created more demand for the depleted North American lumber.

Why are lumber prices fluctuating?

Lumber prices fluctuate due to recurring and common factors. Here is the complete rundown of the top reasons:

1. Housing Gap

The housing gap due to the real estate boom during the pandemic still exists. Additionally, more houses in the U.S. are starting to age 70 years and older have to be torn down or rebuilt. As a result, the country’s housing market will slowly offset production, eventually leading to increasing lumber prices.

2. Weather and Natural Disasters

Hurricanes and floods have a big influence on lumber market value as they disrupt the steady supply chain and reduce lumber availability.

Similarly, the recurring wildfires every summer put the lumber industry’s operation to a halt to give way for forest recovery. Generally, it creates low supply production which impacts lumber prices.

3. Transportation Costs

Lumber transportation from the forest to the mills, and the market requires a great deal of labor, machinery, and fuel. Overall, these three underlying factors all add up to the expensive transportation costs that drive its prices.

4. Sawmill Issues

Canada’s sawmills, particularly in British Columbia experience low production output due to new government regulations and the country’s recent wildfire that burned 913,000 acres of its forestry region. Additionally, its lumber industry faces labor shortages that impact its timber production and lumber prices.

5. Trade Disputes

The lumber trade dispute between America and Canada makes the global supply even tighter. Canada, being the second largest lumber producer in the world limits its lumber supply in the market because of the tariff. Ultimately, this tariff decreases lumber accessibility and increases its market value.

Which variables impact the price of lumber?

• Economic Factors and Interest Rates
• Weather and Natural Disasters
• Transportation Costs
• Sawmill Issues
• Trade Disputes
• Currency Exchange Rates

Where does lumber come from?

Lumber is a processed wood product from harvested trees. It comes from two common tree species:

1. Softwood – These are from coniferous trees which grow fast and have needles instead of leaves. Pine, spruce, fir, and cedar are examples of softwoods used for lumber.

2. Hardwood – These are from broadleaf trees that grow slowly and have leaves instead of needles. Oak, maple, birch, cherry, and walnut are examples of hardwoods used for lumber. Additionally, it is harvested from natural forests and commercially grown forests or plantations.

As per international law, every harvested tree requires one seedling replacement.

Construction and shipbuilding were the basic foundations of the first lumber mill built by the Dutch on Manhattan Island in 1623. Furthermore, the rise of urbanization and industrialization in the early 19th century modified sawmill technology into steam power to streamline the lumber industry.

Overall, this development made way for the first international lumber trade agreement which officially started in the late 19th century.

Today, this essential construction material mostly comes from the United States, Canada, Russia, Sweden, and Finland.

What is the future price of lumber?

Lumber production is present throughout the year however its production, supply, and demand peak are determined by certain seasons and sustainability programs. Spring and summer are the seasons for high production, supply, demand, and price hikes in the market as construction companies begin to build houses and buildings.

Conversely, low production and supply are common in winter months as logging is put to a stop because of the cold weather. Additionally, transportation is hard due to ice and snow.

Furthermore, the rising and falling of housing markets since the pandemic greatly affected lumber demand and prices. The Forest Economic Advisors, LLC reported an estimated shortage of 4 million homes. This is supported by the increasing single-family housing trend (up by 16%). Also, the growing popularity of engineered wood products, like cross-laminated timber (CLT) and glue-laminated timber (glulam) propelled the softwood lumber market expansion.

As a result, experts predicted a green lumber investment as its price will double to $1,122.83 in 2028. Overall, various factors influence lumber price fluctuation which is constantly happening every year specifically the growing temperature every summer which usually leads to wildfires that affect the lumber industry’s productivity.