Lumber prices are at historical highs, capacity is still tight relative to lumber demand

The good news is that according to “Random Lengths” composite pricing, the cost of framing lumber has decreased (February 1st) since mid-January.   The bad news:  the price index is still higher than at any other point in the last 7 years, in fact prices reached a record high this January.   Future prices indicate a possible stabilizing or slight decline in lumber pricing as 2013 progresses, but it does not appear that prices are going to drop anywhere near the prices seen in 2010.

Lumber prices increased significantly toward the end of 2012 and continued to rise in January.   Several factors are affecting pricing lumber, but all are related to supply and demand.

US Housing

US Housing starts in December 2012 were at the highest level in 6 years with 954,000 seasonally adjusted starts.  This number still lags the numbers during the housing boom of early 2000 where typical starts were over 1.5 million units.   Hurricane Sandy construction and rebuilding is now in full swing, slightly adding to the lumber demand.

China

China imported a large amount of lumber in the last quarter of 2012.  Asia is a sizable market for US lumber and it appears after several months of lagging, the Chinese market is starting to heat up.

Suppliers are cautious

After the housing bust in 2005, a significant number of mills were shut down.  While the supply chain has increased capacity, the incremental changes have been conservative relative to the demand.   Saw mill capacity isn’t the only limitation; field resources and equipment used to bring cut trees to pick up points are in short supply.

Rather than add significant capacity, we are seeing sawmills change their product mix, focusing their capacity on the highest profit items to process.   Right now some of the better profit margins are for framing lumber used in housing construction.  Other types of lumber that are used in non- construction industries area lower priority.   One of Packnet’s major suppliers of crating lumber has stopped processing boards and is focusing on 2×4 lumber.

Regardless of the market conditions, Packnet is committed to maintaining its supply base of crating and packaging materials so we can assure our customers response, high quality services at affordable prices.