It’s common for framing lumber prices to shoot up this time of year, then start dropping around May. But, a variety of factors make it likely that we’re entering a multi-year era in which the cost of wood will keep rising for quite a while, experts predict.
Start with the now-expired Softwood Lumber Agreement (SLA) and the Jan. 6 finding by the U.S. International Trade Commission that Canadian softwood lumber had injured U.S. producers. That means countervailing duties could take effect after April 1 and an antidumping duty could arrive by July. Rumors are that the duties could total 30%. Meanwhile, negotiations to renew SLA revolve in part around U.S. calls for a provision in the new agreement that would impose a quota on Canadian imports—so if a new SLA emerges, there could be restrictions on imports from the nation that provides roughly one-third of the softwood lumber used in the United States annually.
“What’s happening with the [prospects of] duties and the SLA is going to cause volatility,” says Matt Layman, a North Carolina-based consultant who writes a weekly analysis and forecast of lumber prices.
Canadian Prime Minister Justin Trudeau brought up SLA at his final meeting with then-President Obama late last year. But there were no indications SLA came up during Trudeau’s initial meeting with President Trump on Feb. 13.
Even without the duties and potential quotas, longer-term trends point to higher prices:
- Bugs are killing trees. The mountain pine beetle that ravaged British Columbia for much of this century has killed 54% of the marketable lodgepole pine forest in the province, the B.C. director of forest analysis and inventory said at a conference in January, according to a published report. In some parts of the province’s interior, the loss was 80% to 90%. As a result, the amount of wood that timber companies will be allowed to cut in future years will be trimmed by more than half in some areas, and the limit for the whole province is forecast to decline this year.
- Don’t look elsewhere for relief. “There is not much room to increase production in eastern Canada, and the U.S. West Coast and inland regions will be bumping up against sustainable harvest levels soon,” says Paul Jannke of Forest Economic Advisers. “There is plenty of fiber in the U.S. South, but the skilled labor force is not where the trees are, so labor will be a limiting factor. We won’t be able to meet new demand with the existing capacity base.”
- Demand is rising. Metrostudy, a sister company to ProSales, predicts the number of housing starts nationally will rise 14.3% this year to total 1.36 million homes. “If we get to 1.5 million, we’re going to have a serious supply problem,” Layman believes.
- Mills are maxed out. There’s not enough spare production capacity at the mills in operation today. According to Jannke, it takes two years from the time when a company decides to invest in a new mill until the time that mill is operational. “That means it would be 2019 before we would get any significant new capacity coming on line,” he says. A few new mills have been announced, but their combined capacity won’t be enough to meet demand if we were to see 1.5 million to 1.7 million starts—and Metrostudy is predicting 1.52 million starts just next year.
Recently, “everybody had a perception lumber prices were overvalued, and now prices are up 50 bucks,” Layman said in mid-February. “Dealers have had this mental block that builders won’t buy $500 lumber. This may be the year we go through that.”