Caution slowed North American lumber markets dramatically
War escalation, financial sanctions, rising fuel costs, and lingering trucking challenges contributed to volatile panel and lumber prices
Originally published by Fastmarkets Random Lengths, April 12, 2022
Myriad concerns penetrated North American lumber and structural panel markets in March, contributing to a downturn in prices across most markets.
Issues lingering for months combined with the introduction of fresh concerns generated an abundance of caution at a time when many traders expected markets to ramp up ahead of strong second-quarter demand.
Unease surrounding the consequences of the war escalated in March following Russia’s February 24 invasion of Ukraine. Financial sanctions levied on Russia and companies refusing to do business with entities within that country influenced trade and economies.
War unease sent the stock market plummeting
Whether other countries, including the U.S., might be drawn into the conflict remained a possibility, although unlikely. Negative implications stemming from the war led to a plunging stock market.
The war also provided momentum to rising fuel costs, which were already increasing prior to the invasion. The price of diesel catapulted over $5.00 per gallon by March 14 and remained there for the remainder of the month.
Meanwhile, gas prices rose to $4.32 per gallon and over $5.00 per gallon on the West Coast. Consequently, the cost of products at stores rose as freight rates increased, while consumers also felt the squeeze at the pump.
Transportation issues linger over a strained market
Transportation issues rising from the shortage of truck and railcar availability lingered in many markets. Subsequently, late shipments forced buyers to decide whether to purchase more high-priced stock to bridge the gaps in their deliveries or simply wait on previously placed orders to deliver.
Many traders view shortages of railcars and trucks as a long-term problem, with deep-rooted issues within those industries constricting availability.
With inflation rising to a 40-year high of 7.9% in February, consumers were forced to portion more of their paychecks toward necessities, which for most people do not include wood products.
Inflation adds to volatile lumber and panel prices
While the cost of transportation to distribute goods to stores increased, other inflationary factors were in the works. A lack of wheat exported from Russia was expected to send the price of bread skyrocketing. The rising price of fertilizer used in the cultivation of crops was also expected to raise food prices.
To combat inflation, the Federal Reserve approved a 1/4-percent rate hike effective March 17. It was the first increase since late 2018 and one of several expected throughout 2022.
High lumber and structural panel prices, and fresh memories of the steep and extended decline in 2021 markets, added to the cautious approach. Later in March, as prices peaked and began to decline, buyers hesitated to purchase in a falling market.
Mortgage interest rates rising from 3.76% in early March to 4.67% on March 31 harkened a potential slowdown in housing starts and refinancing. Traders warned of a continuation of February’s downturn in both existing- and new-home sales, as home prices also continued their unabated climb.
The combination of rising home prices and interest rates sent the National Association of Realtors’ Housing Affordability Index to a January reading of 143.0, down sharply from 183.8 a year earlier.