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Lumber futures tumbled to a new multi-year low last week, as residential construction continues to lag activity in previous years. Prices have softened across the globe and, despite a sudden uptick in producer prices for softwood, it’s unlikely that a sustained recovery will take place until homebuilding bounces back. 

The volatility of the COVID-era has played a role in changing the lumber market forever, as the 54-year-old LBS futures contract will enter its last trading session today and the leaner LBR contract will subsume its share of the market.

Related ETF & REITs: iShares Global Timber & Forestry ETF (WOOD), Weyerhaeuser Company (WY), Rayonier Inc. (RYN), PotlatchDeltic Corporation (PCH)

North American lumber prices have been trending lower since March of last year, tumbling more than -75% from highs above $1,450 per 1,000 board feet to last Friday’s close below $345, a three-year low. The decline is not a regional phenomenon, but a global one. According to the American Journal of Transportation, the recently-updated Global Sawlog Price Index (GSPI), consisting of sawlog prices from 21 key regions worldwide, has now fallen for two consecutive quarters from an all-time high of $94.96 per cubic meter (m3) in Q2 2022 to $87.50/m3 in the final quarter of 2022, a -8% decline. The recent downturn in the GSPI follows a two-year period of increases.

Some have speculated that a 6.2% MoM rebound in the softwood lumber component of April’s producer price index (PPI), its first gain in nine months, could suggest that more resilient demand is tightening supplies available for American construction companies. However, Canadian Forest Industries reports typical usual spring buying of construction framing softwood lumber had yet to materialize by the end of April. Suppliers, therefore, had plenty of inventory on hand as supply continued to outpace demand. If that perspective is correct, the most recent PPI reading may have only been an outlier and a meaningful reprieve for lumber futures could…

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