Lumber prices have slipped from the stratospheric highs seen earlier this year but the demand for Northwest logs is expected to remain healthy, experts say.
After consistently hovering above $1,500 per thousand board-feet earlier this year, the price of lumber is now down to about $1,000 per thousand board-feet and falling.
For context, the price has usually ranged from about $300 to $400 per thousand board-feet over the past decade, said Brooks Mendell, president and CEO of the Forisk timber industry consulting firm.
While the price could drop to $500-$600 per thousand board-feet, the industry’s fundamentals remain solid because the U.S. housing inventory is low, he said.
“It’s primarily a function of sawmills catching up to demand,” with prices falling as supplies rise, Mendell said. “People have been running extra shifts and the demand has continued to be strong for lumber.”
If the demand for new housing — and the remodeling and repair market — remain strong, then lumber can continue to fetch decent prices, he said.
The price surge seen earlier this year was the result of a “pinch” in lumber production as sawmills struggled to increase their output, partly due to coronavirus restrictions and labor shortages, Mendell said.
“It took them longer to catch up than expected,” he said. “The price got out of whack.”
However, the labor shortages that have hindered lumber production may also constrain housing construction, acting as a headwind for lumber demand, Mendell said. “If you don’t have the bodies, the labor, you can’t build the homes.”
If the repair and remodeling market softens after growing robustly during the pandemic, that may also inhibit some of the demand for lumber, he said. “It’s possible we could have eaten some of the do-it-yourself projects out of the future and gotten them done already.”
Fluctuations in the lumber market don’t neatly correlate with changes in log prices, which are influenced by supplies available to sawmills, Mendell said.
“It’s a local market for logs and a national market for lumber,” he said.
Recent record-setting lumber prices haven’t caused a similar upswing in log prices, said Gordon Culbertson, international development director with the Forest2Market consulting firm.
“The two can be very disconnected,” he said.
Over the past year, log prices rose from roughly $700 per thousand board-feet to $900 after the September 2020 wildfires but have since declined to about $750 due to an abundance of salvage timber, he said.
“It’s a race to get it harvested and milled before it becomes unusable,” Culbertson said. Board-feet are calculated differently for timber and lumber, so 1,000 board-feet of timber can generate 2,000 board-feet of lumber or more.
With fire restrictions looming, reduced timber harvest could cause log prices to rise again later this summer, he said. “When mills aren’t getting logs, it doesn’t take long before the inventory is used up.”
Apart from accounting for fire risk, many sawmills are still eager to build up their log stocks for autumn and winter because lumber prices remain above the cost of production, said Hakan Ekstrom, principal of the Wood Resources International consulting firm.
“Even if prices have come down, lumber prices by historical standards are high,” he said. “They came down from an extraordinarily high level we haven’t seen before. There’s still a ways to go before they become hesitant to run.”
Sawmills will likely remain profitable for the next couple years and the demand for wood products can generally be expected to strengthen over the next decade or more, with some ups and downs, Ekstrom said.
Many homes in the U.S. were built immediately after World War II and have seen better days, he said. “A lot of those will need to be replaced with new houses or renovations, and that can’t be done in just a few years.”