Lumber News » An Unusual Year for Lumber Prices

An Unusual Year for Lumber Prices

Lumber and building material prices have had quite a change in price patterns this year. Typically (over 80% of the time), the annual lows for lumber occur in October. This year, the low occurred in mid-summer, after a huge increase and decrease in the Spring. The chart shows how volatile prices can be, with production capacity lower and a slight increase in demand. It took over 3 months for mills to add enough production and when demand dropped off due to higher prices, it took another couple of months to adjust back down again.
The best analysis I have seen is at The Skyrocketing Price of Lumber by Al Tomkins –
“Earlier this year, The Wall Street Journal explained what was happening to lumber prices:

“Lumber prices shot up because of a shortage of supply. When the housing market cratered, mills in the U.S. and Canada slashed production; output plummeted about 45% between 2005 and 2009, according to Random Lengths, an industry data provider.

“Wholesalers shrank their own inventories and had little incentive to build them back up last year. Housing is the largest single source of demand for lumber, and new-home sales fell 7.6% in December from the prior month, to 342,000 units.

“So when builders began their annual re-stocking for the spring construction season, there was little slack in the supply chain, causing a squeeze on prices. Some firms also stepped up speculative construction in the hope that an expiring federal tax credit would boost the market.

” ‘Any increase in demand is going to allow the mills to raise their prices,’ said Gary Vitale, president of the North American Wholesale Lumber Association.”

The steady increase over the last half of the year indicates that lumber supply and demand is closer to equilibrium, and reactions to changes now illicit a more measured approach. Every mill, contractor and lumber company should be aware of the extreme volatility at these levels of business, and when quoting, should be aware of the extreme risk if pricing too low. Our industry operates on thin margins, and a quote held for 30 days could cause huge losses if prices increase. Holding prices for 30 days or more has already put many companies out of business in our area, and remaining contractors should be very careful when pricing now. If a supplier offers to hold prices, that supplier might actually have to close (or even bankrupt, as several have) to keep from having to honor those prices.

The supply chain is extremely thin, and many items can no longer be found locally.

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