Lumber prices have rebounded strongly over the last month amid ongoing supply chain disruptions and strong building demand. After rallying to record highs earlier this year, futures collapsed by nearly 75% throughout the summer months, setting off a renewed buying spree that has sent prices north of $1100 yet again.
Part of the latest move higher is the Biden Administration’s recent implementation of new tariffs on lumber imports. The Commerce Department announced it will double the average tariff on Canadian softwood lumber to 17.90% from 8.99%. Raising tariffs creates headaches for homebuilders and higher costs for homebuyers as lumber supply is ultimately constrained further.
Related ETFs: iShares Global Timber & Forestry ETF (WOOD), iShares U.S. Home Construction ETF (ITB)
Prices Rising on Renewed Demand, Supply Chain Disruptions
Since the onset of the pandemic, lumber prices have been incredibly volatile. After falling to a pandemic low of roughly $270 per thousand board feet in March 2020, lumber futures surged to a record high of nearly $1,700 in May of 2021. From 2015-2019, prices averaged out to be roughly $357 per thousand board feet, yet over the last year and a half price movement has been far from normal.
After falling from record highs, lumber costs appeared to stabilize through the summer, albeit at historically elevated levels. However, since the start of November, prices have soared once again.
MRP recently highlighted the lumber market in October, noting that a rebound in demand and potential supply disruptions could see lumber prices boom again. Over the last month, lumber futures have done just that.
Since the start of November, lumber futures have surged nearly 70%, jumping above the $1,000 per thousand board feet level for the first time since mid-June, per Business Insider. Since bottoming around $452 in August, prices have rebounded roughly 127% to their current level at $1,071 per thousand board feet.
The price rally is driven by a multitude of factors, one of which is the unprecedented transportation disruptions caused by floods in British Columbia, writes Reuters. Record rainfall in Canada created significant flooding that washed out road and rail transportation routes, causing softwood lumber prices to double since mid-November. The flooding has a significant impact on lumber markets as roughly 14% of North America’s lumber supply comes from British Columbia.
According to Fortune, another reason for lumber’s renewed rise was a return of do-it-yourselfers into the market as prices fell over the summer, coupled with curtailed sawmill production in early fall. In turn, supplies have been drawn down quicker than expected. Wholesalers are now scrambling to secure lumber in order to avoid limited inventories during spring 2022’s building season.
Chief Economist of Moody’s Analytics Mark Zandi told Fortune that, while the worst shortages will soon be behind us, some deficits and lingering supply chain disruptions could take until beyond 2022 to get resolved, meaning lumber will be vulnerable to large price runs.
Similarly, strong housing data across the United States has played a part in boosting lumber prices. Per MarketWatch, US home builders began construction on homes at a seasonally-adjusted annual rate of 1.68 million in November, a 12% rise from October’s data. Compared to November 2020, housing starts…
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