Lumber in Slumber: More Sawmills to Close as Prices Poised to Hit 5-Year Low

SEATTLE (Scrap Monster):  Chicago lumber futures hit a two-year low of below $350 per thousand board feet, erasing the solid gains traders made when prices were as high as $1,400 per thousand board feet during the height of the recent price spike.

Lumber’s drop, which made it the worst-performing commodity last year, was a sharp reversal from all-time highs recorded in 2021, when shut-in North Americans who were building or repairing homes during pandemic lockdowns scooped up scarce supplies.

Higher borrowing rates are likely to hamper home construction in North America, including British Columbia–the first lumber-producing region in the continent poised to reduce production when lumber prices fall.

The Bank of Canada raised the target for its overnight rate by 50bps to 4.25% in its last meeting of 2022, pushing borrowing costs to the highest since 2008. The Federal Reserve also raised the fed funds rate by 50bps to 4.25%-4.5%, pushing borrowing costs to the highest level since 2007.

While large suppliers are reducing output, purchasers are nonetheless concerned about rising interest rates and passing up low-cost supplies, meaning any price recovery is “not going to go very far,” said Russ Taylor, president of global wood market consultant Russ Taylor Global in Vancouver.

Rising interest rates have also pushed mortgage rates to go up, dragging down sales and reining in home price growth while putting a severe dent in homebuilder confidence. According to the most recent US Census Bureau report, new permits for home building fell more than 10% to 1.351 million units in November, the lowest level since June 2020.

Taylor said that new house starts in the US will be roughly 1.2 million in 2023, down from about 1.55 million in 2022–with one major homebuilder expecting the figure to be just one million.

“This is the second largest homebuilder in the U.S.,” Taylor said. “It sounds like it’s going to be worse than all the forecasters are thinking.”

Forecasters predict that lumber prices will range between $475 and $595 per thousand board feet in 2023. Taylor said the break-even price for most sawmills in B.C. is $450 to $500 per thousand board feet.

“I would say it’s going to be in the high 400s,” Taylor said. “I’m quite pessimistic for the year. I think it’s going to be much better a year from now, but we’re going to have to go through a tough time until we get supply and demand finally balancing out, and that’s going to take some low prices, I think.”

Courtesy: www.thedeepdive.ca