How Has COVID-19 Affected Lumber Prices?
A while ago, we featured information about soaring lumber prices in the United States. Back then, factors like Hurricane Harvey were affecting markets, and as of reporting, the National Association of Home Builders showed that prices had gone up by 30% between August 2017 and January 2018. This cost was the highest on record since the NAHB had started keeping records back in 1995.
A combination of things affected lumber prices. There was a construction boom, with single family home construction increasing 7% between January 2017 and January 2018, and there were also more exports going out to places like China, which tightened demand. Wood-destroying insects in British Columbia and wildfires were causing deforestation and import duties on Canadian lumber tightened supply even more.
Back then, economists were saying that the chaos in lumber markets meant that prices would almost certainly stay high through 2020—and this could potentially cause a surge in home prices, though homebuyers in general were comfortable with the increase and still purchasing homes.
Of course, all of this was long before COVID-19 took over the world, so these are big questions at the forefront of everyone’s mind right now: Where are lumber prices, and what will happen among lumber markets as the pandemic continues? Below, you’ll find updated answers to shed light on these questions!
First, What’s Happening in the Construction Industry?
Where lumber prices are concerned, it’s all about supply and demand. As long as construction is moving forward, lumber will be in demand—and prices go up when there’s not as much supply to meet that demand.
Right now, construction is still moving strong in the United States. In many areas, this industry never really fully shut down because so many construction projects were considered essential business. New infrastructure, new housing projects, new commercial projects—these things were still needed despite COVID-19. Even in areas where some construction did shut down, we are now starting to see projects reopen. For instance, Boston is currently working on the implementation of a full construction reopening plan, and many areas around the United States are following suit.
Troubles in the Timber Industry
Even though construction is still moving forward, the timber industry as a whole is struggling. Oregon is one example of an area plagued with problems, and there are many other areas reporting similar issues. The problem is, timber doesn’t rely solely on the construction industry to stay afloat. Paper manufacturing, home goods, and all kinds of other industries rely on timber, and many of these industries are experiencing significant downturns.
What this means is that as lumber companies struggle to find places to sell wood among decreasing demand in some of these other industries, they are experiencing layoffs and reduced output. Further, the timber industry is a very hands-on job, one in which social distancing proves difficult at best, so workers have had to contend with additional safety issues, which increases risk and leads some to want to stay home.
Where are Lumber Prices Now?
Although demand has dropped somewhat for timber, there is still a surprisingly strong need for lumber, largely driven by the construction industry. As one might expect, this is liable to lead to soaring lumber prices. Nasdaq’s commodities index shows that this is true. February 2020 saw lumber futures spiking to their highest point at $463. By early April, those futures had plummeted as the full effects of the pandemic took hold, dropping to $259. Then futures started climbing back up again. Early July closings showed futures as high as $432.
And in the Future?
In this instance, the future is a little bit difficult to predict simply because the COVID-19 pandemic is an unprecedented event with effects that economists are only just beginning to understand. But as with any commodity, it’s reasonable to assume that supply and demand will continue to drive prices. This means that lumber prices are likely to continue fluctuating as the construction industry and other areas of trade continue moving forward on essential projects. Meanwhile, between job loss and downturns in other sectors that require timber, lumber producers are struggling to keep up. In the short term, lumber prices could very well go higher, but there may be periodic drops in price as shutdowns or other delays cause precipitous drops in demand.