Wood prices keep lumbering along in 2013

If you are in the business of purchasing lumber or wood products, 2013 could be a frustrating year for you.  Lumber prices in February reached another milestone for an 8 year high.  Softwood prices have also spiked up lately and have been on a general upward trend over the last three years.   The price increases are the result of simple supply and demand economics.

Supply                                                    

After the housing market crash, a lot of sawmills were shut down.  Sawmills are expensive to start up so the industry has been conservative in adding back capacity by increasing production with existing mills rather than starting up new ones. Historically this industry has shown to easily jump into overcapacity situations, but that is not the case over the last few years.  Whether the industry has found a new sense of discipline or there is a lack of faith that the US economy and housing market will continue to recover is mere speculation.  But for now, we are not seeing any major announcements of new saw mill start ups.  Still output has increased substantially over the last year, but barely enough to keep up with demand.

Beetle Kill Wood:   The Mountain Pine Beetle Epidemic that has been decimating forests in the Western US and Canada continues to run rampant.  Both the US and Canada have been able to harvest a substantial number of dead pine, creating a large increase in pine wood processed over the last few years.  The amount of beetle kill trees available to harvest is waning and timber processing is predicted to drop over the next few years.

Demand

The US housing market is continuing its recovery; it is still not anywhere near the demand before housing crash, but still increasing.  Experts believe that 2013 will continue to be a strong year.    Demand for construction lumber was 30% more than a year ago.

China has increased its imports for timber.  This trend started toward the end of 2012 where their imports of softwood lumber grew by 16 %, China is a major importer of timber and while it has vast forests, much of its forests are earmarked for environmental protection rather than timber production.

 

The graph below illustrates the pricing trends over the last couple of years

Many analysts believe that timber price increases are a longer term trend and are not expecting any slacking off in 2013.   Packnet has seen substantial price increases in the wood products that it buys.   Over the last couple years Packnet has largely absorbed price increases with tighter margins and more efficient production.  We are evaluating each project individually since we simply don’t pass along a standard percentage increase due to the wide mix of materials and capabilities that we offer.