Spend Matters welcomes another guest post from Nick Smith of Mintec.

In October 2012, Mintec discussed the ties between US lumber and housing. Lumber prices were rising on increased demand, with housing starts at a relatively high level. Fast forward a few months and after prices continued to rise on good demand until the spring, lumber then fell. Like a tree in the forest, you could say.


In March of this year, US lumber prices reached an eight-year high as increasing demand from the construction industry helped to support prices. US housing starts in March reached an annual rate of over 1 million homes, up nearly 50% on March 2012 and the highest rate since June 2008. These high prices, however, were not to last.

Lumber futures have since plummeted, falling 20% since the beginning of April, as the earlier high demand and high prices saw producers ramp up production and increase their sawmill operating rates. US lumber production in Q1 2013 was up 7.2% year-on-year and Canadian production in the year to April was up 8% year-on-year. In fact, Canadian lumber production in April reached the highest level since April 2008.

North American lumber mills are expected to produce 55.5 billion board feet this year, up nearly 7% from 2012. However, although total US lumber exports increased, log exports from the American West Coast fell 33% in Q1 2013 while lumber exports to China fell 3%, possibly put off by the high US prices. China has looked to increase imports from elsewhere, including Chile, New Zealand, and Europe.

Also, the bad weather in late spring seen throughout much of the Northeast and upper Midwest delayed a significant number of new housing starts, with national starts in April dropping from the 1 million recorded in March to 856,000. Combined with the increased production and reduced exports to China, this has put downwards pressure on the market and resulted in declining prices.

In October, we spoke about the link between lumber prices and economic growth trends. The rapidly fallen lumber prices could therefore be viewed as an indication of another future dip in economic fortunes. The recent drop in lumber has more to do though with the combination of market specific factors, rather than being indicative of wider economic problems. The increase in sawmill activity, coupled with the drop in both domestic and international demand, has led to the recent fall in price. With some estimates showing potential new housing starts reaching 1.3 million by the end of 2014, it is likely that this will only be a temporary drop in prices.

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