What is the cause of the lumber price increase?
An awful lot of us are asking this question. Let’s chat about what’s been happening in the industry these last few years.
Historically, lumber has been a boom industry since the 1600s. Lumber prices have always fluctuated, but not to this degree. Three or four large mills account for 80% of all production. The actual volumes are hard to put into context. When something, natural or man-made, affects one or more of these large mills the consequences can be more impactful than if the bulk of production is shared by many mills.
Primary Influences on The Price Increase
The unprecedented post COVID building boom took producers by surprise. The volumes of wood sold after COVID were staggering. One of the largest producers sold half of their inventory in one month. That has never happened before in my career.
The second largest mill in the world had been ravaged by fire and the new COVID restrictions did not allow them to re-open for production. Other mills were cutting back production to four days a week. One shut their doors for a six week hiatus. This severely impacted the overall production capability for lumber products at a time when demand was off the chart. Inventory was sold, the shelves were bare, and lumber prices increased.
In addition, the ongoing California wildfires are leaving their mark on the industry. There are estimates that the fires burned or damaged trees that might have produced billions of board feet of timber.
Hurry Up and Wait Syndrome
Now, we add insult to injury with shipping backlogs. After the lockdown everyone wanted to get moving again, quickly. And, everyone wanted everything at once. Consequently, box truck and container shipping fell way behind. That’s when we started to see the supply chain disruptions in many industries, including the lumber industry.
As an executive of one of the giant mills put it, “We are built to produce in serious volumes. One mill-run can fill up five football fields worth of products. If we can’t get it on rail cars as we go, we can’t continue to produce.”
Lumber Prices Today
How are lumber prices in 2022? We are still experiencing continuing log jams (pun intended) in lumber distribution caused by the backlog of rail car and box truck shipping lanes.
Another side of this issue is quality control. The large timber market is “back order only” and we are seeing lower quality timbers being sold because, quite simply, that’s all there is. We are warning customers to expect more flaws in their timbers because the industry as a whole is shipping all they have to meet the demand.
Lumber Prices Forecast
Are lumber prices going down? Things are improving somewhat; however, there are still large levels of uncertainty. Prices may not continue to soar but they are certainly not going to come down to anywhere near pre-Covid. The building boom is leveling off in some measure, which begs the question how will all of this volatility affect normal building cycles?
Stay tuned, wood lovers.