How the lumber industry misunderstood Covid and ended up with global shortages and skyrocketing prices

A pandemic surge in home buying and renovation has seen timber prices skyrocket. You may never go back to normal, experts say.

As housing construction and renovations skyrocketed amid pandemic lockdowns, timber prices soared from around $ 400 per thousand board feet in February 2020 to an all-time high of more than $ 1,600 in early February. Since then, prices have fallen to the $ 800 mark – still almost double their pre-pandemic rates – to potentially new levels in the near future.

In April, when lumber prices hovered around $ 1,200, the National Association of Home Builders estimated that rising lumber prices had increased the cost of a new single family home by more than $ 36,000.

The misunderstanding of the timber and housing industry regarding the economic effects as well as Covid-related production restrictions and a ten-year period of substructure construction for new apartments since the financial crisis in 2008 prepared the scenario for supply bottlenecks with increasing demand. say the experts.

Given the temporary economic downturn due to closed closings and the coronavirus outbreak, like many other manufacturers, wood producers have removed a page from their recession playbook, reduced production and taken downtime, said Eric Kingsley, forest economist and partner at Innovative Natural. Resource Solutions, a consulting firm with offices in New Hampshire and Maine.

“The assumption was … that housing construction, which has most of the wood going into it, would slow down,” he said of new housing construction, and there would be a pause. “That turned out to be wrong.”

A wood industry spokesman said he had actually predicted “very good home starts” and the closings were “all for employee safety,” said Susan Yurkovich, president and CEO of Forest Industries Council, an industry lobbyist for Canada. Manufacturer, major supplier of structural softwood to the USA.

The price jump is “a classic case of an imbalance between supply and demand,” said Yurkovich after “a massive interruption in the supply chain” due to Covid. “Never before in history have we seen prices soar so quickly.”

The plants were temporarily closed to introduce new safety protocols and purchase PPE. Some steel mills had downtime. Others had to cut production because workers bought Covid. The mills were understaffed when demand came.

Home purchases boomed as consumers with jobs and income left over left the cities for the suburbs in search of a second home or a new remote work situation where their family could spread out.

Workers who stayed in their existing homes added home office additions or took on long-delayed renovation and expansion projects. Historically low interest rates and a range of monetary policies made it easier than ever for buyers to deposit into 401 (k) accounts and buy second and third homes.

All of this exacerbated the decline in supply and labor, drove up prices and created the opportunity for more extreme price spikes.

Also at stake were large buyers who bought lumber before prices continued to rise, further reducing supply.

“More and more people were signing contracts to make sure they were getting adequate care. That took more wood from the open market, ”said Brian Leonard, a wood analyst at RCM Alternatives. “There were many buyers who were looking for less wood.”

A delivery backlog has further increased the offer, as grain deliveries with stuck wagons and truck drivers remain scarce.
“Just-in-time inventory means that everyone needs it at the same time, and in terms of logistics we just couldn’t get any wood,” said Leonard.

After the spring cuts, factories rushed just as hard to pique buying interest, adding shifts and hiring workers in the fall. The plants to be suspended were re-spun as quickly as possible.

Wood usually has a lead time of two weeks and some customers are only now receiving the wood they ordered 4-6 weeks ago. The breakthrough in supplies helped bring prices down.

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