Lumber Industry Perspective 1st Quarter 2015

Lumber prices fall hard in Q1

By Jesse Marzouk

Lumber Perspectives Graph Q1 2015While lumber prices in 2014 held within a narrow range, the first quarter of 2015 has already proven to be quite different. The Random Lengths Framing Lumber Composite Price, which includes prices from a variety of softwood framing species, began 2015 at $382 per thousand board feet (MBF) and declined throughout the quarter to $336 per MBF. A number of factors contributed to the decline, but there was simply too much supply chasing too little demand.

Demand was weak throughout the quarter, as harsh winter weather conditions in the U.S. slowed new home construction. Demand was not only weak in the U.S., but a lack of demand from China and Canada, to a lesser extent, put downward pressure on lumber prices. China, which had been a source of strong demand for lumber over the last five years, has backed away from the market. The Chinese government, moreover, appears dedicated to transitioning the economy away from one based on infrastructure and construction to one based on consumer demand. With more than 90% of lumber utilized for concrete forming in China, it appears that this tran-sition will have a negative impact on lumber demand. The Canadian economy, which had been propped up by high prices for commodities, and most importantly oil, has struggled under the more than 50% decline in the price of oil.

Further, the strengthening of the U.S. dollar against most currencies led to an increase in lumber imports, and subsequently an increase in supply. Canadian sawmills have benefitted from a weaker Canadian dollar, which has fallen approximately 10% since the start of 2015. Shipments of softwood lumber from Canada to the U.S. in April, however, will be subject to the duty and quota restrictions for the first time in 18 months, as likely will be the case in May based on current lumber prices. This should serve to stabilize supply and potentially help prices rebound.

Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.