Lumber Industry Perspective 1st Quarter 2016
Lumber prices rebound, post gain in Q1
By Jesse Marzouk
Lumber prices increased in the first quarter of 2016 after falling significantly in 2015. The Random Lengths Framing Lumber Composite Price, which includes prices from a variety of softwood framing species, ended at $345 per thousand board feet (MBF) after starting the quarter at $320 per MBF. Similar to most assets in the highly volatile first quarter, prices declined for the first five weeks, before rebounding and ending the quarter with a gain.
Lumber prices increased due to strong U.S. housing starts. Seasonally adjusted housing starts for the first quarter of 2016 increased 15.9% year-over-year. Moreover, seasonally adjusted single-family housing starts in the first quarter of 2016 increased 23.2% over the prior year period. Single-family starts are particularly important to industry performance as each single-family unit consumes approximately three times as much lumber and panel products as one multi-family unit. A number of factors are responsible for the increase in housing starts thus far in 2016, including mild weather throughout much of the country, continued strong employment gains, and falling mortgage rates.
During 2015, Canadian lumber producers were shielded from some of the pain of falling U.S. dollar lumber prices, as the Canadian dollar weakened significantly against the U.S. dollar. That phenomenon reversed in the first quarter with the Canadian dollar strengthening as lumber prices in U.S. dollars rose. The Canadian dollar has been highly correlated with the price of oil over the last year, and the rebound in oil prices in the first quarter of 2016 pushed the value of the Canadian dollar higher.
Jesse 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.