While we still have a month or so left in 2013, it is interesting to take a look at what transpired over the last 12 months in terms of lumber prices. The beginning of the year saw some significant increase in lumber prices as the supply chain continued to show reluctance in increasing capacity to match demand. The strong resurgence in residential construction combined with a strong overseas demand created some lumber shortages across the supply chain.
Lumber prices started a steady increase last October and continued to rise until the early spring of 2013 where prices reached historic highs. Prices dropped through the summer, but started back on an upward trend again this fall. While current prices are lower than the peaks reached in April of 2013, they are 12 to 15% higher than last year. As saw mills started to believe that the demand would continue, many started increasing capacity, this has stabilized the supply chain.
Last spring, Packnet had to review its pricing on some of its wood packaging offerings as suppliers were passing on significant price increases. Fortunately as the supply situation loosened during the summer, Packnet was able to minimize cost impacts to its customers. The question will be what does 2014 hold in store for us? Let’s look at issues affecting supply and demand.
Demand: The US housing market is the biggest user of domestic lumber and while the demand has cooled off a bit over the summer, some experts are predicting strong growth in 2014. According to a news release from McGraw Hill Construction, construction is expecting to increase 9% in 2014. This is after a 5% increase in 2013 over 2012. China’s lumber demand also cooled off in the later part of the year, but experts are predicting a continued strong demand next year as China works down inventories and continues its ambitious construction projects. In short overall lumber demand should be much stronger in 2014.
Supply: Beetle kill wood is still hampering supply as some major Canadian saw mills are announcing closures in the infested areas. On the other hand there appear to be a number of Canadian and US mills ready to increase capacity. We believe that the lumber industry will be more willing to add capacity in 2014, but will stay disciplined and not risk an over-supply situation.
It appears that lumber price increases will be the norm for 2014. In June the Financial Post posted an article saying that industry experts believe that prices will again reach historic highs in 2014 as they could increase by as much as 30% over the highs from 2013.
The US economic growth now still seems to be sluggish and any number of factors could drag it down. The housing market could end up being flat next year. Also it’s possible that China could enter into a soft recession in 2014 thereby cooling overseas demand.
Regardless of economic uncertainties, Packet is always working with its suppliers to help insure lumber availability at the best prices possible. With any luck we are hoping for minimal price increases at least for the beginning of 2014.