The lumber market is coming back into balance after record high prices. Are we headed into a period of calm or further into an uncertain market?
Watch the video to hear from our senior economist in wood products, Dustin Jalbert, as he discusses the North American housing market, supply chain challenges, and the possibility of future volatility. Dustin will be presenting our latest wood products outlook on day one of the Fastmarkets Forest Products North America Conference 2021. Get your ticket here.
Q. Where are we with the North American housing and renovation boom?
The housing and renovation market remains quite strong at the moment, but we have seen some cooling in the end-use markets, which has been a major contributing factor to the historic correction in lumber and panel prices we have seen in the summer months.
With how much home prices have appreciated over the last year, buyers are having second thoughts on buying a home, and the renovation activity that propelled demand last year has started to soften as households pivot their spending back to the service side of the economy. People are returning to restaurants and bars, travelling has picked up again, and a lot of this reflects the fact that vaccine levels have risen in North America.
Demand is still strong, but we are seeing some easing from those very exceptional levels that we saw in second half of 2020 and early 2021.
Q. What are the supply chain challenges caused by Covid-19?
The big challenges that we have seen related to Covid-19 for forest products – wood products specifically – have been related to labor disruptions.
While the story is similar across manufacturing and distribution, the challenges have been two-fold for sawmills. First, we have seen a slow return of employees after being furloughed earlier on in the pandemic. Second, and maybe even more importantly, the surge in positive Covid cases that we have seen across North America in the last couple of months has really made it difficult for the sawmills and panel mills to ramp up production.
As the demand from the last 12-18 months has surged, mills have really struggled to find workers and to be able to add additional shifts and overtime to ramp up production sufficiently to meet demand. This negative supply shock in the labor market has been a huge factor that contributed to the record run up of lumber prices that we saw over the last 12 months or so.
Q. Are we set to see more volatility in the market going forward?
I think volatility is here to stay for the industry. While the worst of the supply disruptions are probably behind us as we see the supply shocks related to Covid start to ease and demand conditions start to moderate, there is still a number of challenges ahead for the industry, even just in the near term.
We have had another historic wildfire season out West, which has restricted logging and will ultimately hamper fiber availability further down the road. Duties on Canadian lumber are set to double in the fourth quarter. Mills are implementing curtailment in response to the significant pricing correction that we’ve seen out in the market today. So even as markets somewhat rebalance, I think the industry is in for a historic amount of volatility in the months or maybe even years ahead, which market participants really need to prepare for.
Pandemic-related labor shortages had a substantial impact on sawmill output and productivity and ultimately contributed to record wood products price hikes. Read Dustin Jalbert's latest views on the possible influence of the Delta variant on lumber supply chain disruption.
Get your one-day $700 pass to day one of the Fastmarkets North America Conference
Eager to find out more about the outlook for the lumber and housing market? Join us for the first day of the Fastmarkets North America Conference September 27-29th, either in person in Boston or virtually. Hear from more Fastmarkets experts and big industry names, including Canfor, Freres Lumber Co., Inc., and Forest City Trading Group, LLC. Get your one-day pass here.
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