What is happening to the wood? Its price rises 400% from the low of 2020

The rigors of the pandemic have affected the bulk of raw materials in a similar way: a sharp drop in demand and therefore in prices in the early stages of the lockdowns and a sudden rise in prices as economies recover. reopen, demand grows and a bottleneck occurs in the supply chain. However, within the list of raw materials, wood has had its own details, being one of the most striking cases.

Last Friday, the wood futures market closed at 1,294.70 dollars for 1,000 board feet, equivalent to 2.36 cubic meters. The data is no longer just noteworthy for scoring a historical maximum without a previous reference in the graphs. If you compare it to the low of 2020, $259.80 where it closed the session on April 4, you get an increase of almost 400%. The madness has continued this Monday, when trading has had to stop in the Chicago market after futures shot up 2.5%.

Several factors have created the perfect storm for rising wood prices in recent years. In 2019, weak demand, excessive inventory levels and severe weather conditions caused wood suppliers to close factories and reduce production. The result was significant downward pressure on timber prices for most of the year and closures of some sawmills by companies such as Canfor and West Fraser Timber, the world’s largest timber supplier.

In 2020, with all activity paralyzed by the coronavirus, low interest rates and the context of having to stay at home made Americans more inclined to demand new homes, thus increasing that of wood, key in construction from the country. There was also a boom in home renovations and additions. This situation caught the producers with the foot changed from 2019 and began to push prices up.

So far in 2021, the rebound has been even sharper. Scarcity is apparent throughout the timber supply chain. Sawmills have struggled to increase their production capacity quickly enough to meet the increased demand. Meanwhile, transport delays and labor shortages at the sawmills themselves have increased costs, which are now being passed on to consumers. Lumber futures have soared more than 60% so far this year and analysts don’t expect any relief until the end of 2021.

As if that weren’t enough, the number of people working in sawmills and lumber conservation in the US is down about 30% from 20 years ago, and the number of loggers is down nearly 40%, according to data from the nation’s Bureau of Labor Statistics compiled by Bloomberg. Although automation has reduced the number of workers needed and increased efficiency, analysts consider current employment levels to be below demand.

But labor isn’t the only long-term supply issue. Climate change and extreme weather conditions threaten logging. A plague of small mountain pine beetles is getting worse as warmer winters allow the insects to thrive in more places around the world. Massive wildfires are a growing concern for the forests of the west coast of the US and Canada. Meanwhile, the logging industry and environmental advocates are vying over which land should remain protected.

However, the proliferation of beetles in Europe is helping to increase supplies to the US this year, as the insects are killing many trees and that increases logging. US timber imports will need to grow by about 15% in 2021 to meet rising demand, and much of it is expected to come from Europe.

Impact on housing

This price frenzy in the lumber market is likely to continue during the peak of US home construction, expected this summer. In fact, as mentioned before, wood supplies are not expected to return to normal until the end of 2021. By then, demand could start to decline.

In the meantime, these increases will continue to add fuel to the fire of house prices, making the acquisition more difficult for large sectors of the population. Rising lumber costs have already added more than $24,000 on average to the price of a new home in the US, according to the National Association of Home Builders. Companies in this industry and legislators have already called on the Biden Administration to step in and find solutions to the wood shortage.

Despite these claims to the Government, not everything has been bad for some of the companies in the timber sector. Canfor has seen its shares rise 107% over the entire period, while shares of West Fraser Timber and Weyerhaeuser have surged 80% and 30% respectively, according to data from Markets Insider.