Lumber Industry Perspective
2nd Quarter 2013
Lumber prices plunge in Q2
By Jesse Marzouk
Lumber prices plunged in
the second quarter as increased
supply and weather delays
caused the market to crack.
The
Random Lengths
Framing
Lumber Composite Price
(FLCP), which includes prices
from a variety of softwood framing species, ended at $324 per
thousand board feet (MBF) after
starting the quarter at $447 per
MBF. Panel prices, which have
been more volatile than lumber
prices, also fell hard. In the
second quarter, the price gains
since the middle of 2012 were
erased for most lumber and
panel products.
Over the last year, lumber
mills have taken advantage of
higher prices as a number of
supply factors limited the
amount of lumber on the market. That changed drastically in
the second quarter of 2013 as
weather conditions slowed
housing starts and the increased capacity brought online
over the last year finally resulted
in an oversupplied market.
Although housing starts increased 28% in 2012 and
should increase approximately
20% in 2013, demand still remains below normalized levels
and the mix has shifted towards
multifamily units, which on average use one-third the amount of
lumber of single family units.
The truth is that the housing
market still remains in recovery
mode and is not robust enough
to absorb additional lumber
supply.
A big question heading into
the third quarter is how higher
mortgage rates will be balanced
by decreased supply that is
surely to come as Canadian
mills will be subject to renewed
duties and import quotas because of the drop in lumber
prices. It is too early to determine the impact of higher mortgage rates as they have not had
time to work through the system, but they will be watched
closely by the housing industry.
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.