Lumber Industry Perspective 4th Quarter 2014

Lumber prices remain steady in Q4

By Jesse Marzouk

Lumber Perspectives Graph Q4 20142014 was characterized as a solid, if unspectacular, year in the lumber market. The Random Lengths Framing Lumber Composite Price, which includes prices from a variety of softwood framing species, ended the year at $382 per thousand board feet (MBF) after starting the year at $390 per MBF. Prices held within a tight range throughout the year, as supply and demand were extremely well matched. While the U.S. housing market generally underperformed expectations heading into 2014, sawmills had a difficult time increasing production.

Entering 2015, there appear to be a number of tailwinds for the U.S. housing market. Mortgage rates declined heading into 2015, as opposed to increasing one year prior, and have fallen even further at the start of the year. Moreover, job creation picked up over the last six months of 2014, with approximately 250,000 jobs created per month on average over the period. Lastly, consumers have been given a windfall with the recent decline in gasoline prices. It is estimated that at current levels, U.S. consumers will save approximately $150 billion per year.

Lower gasoline prices, however, also have a negative impact on the housing market. Homebuilders have recently reported weakness in the Texas market, which had been one of the strongest markets over the last five years.

China, which had also been a source of strong demand for lumber over the last five years, has backed away from the market since last summer. 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 transition will have a negative impact on lumber demand.

It will be interesting to see how these opposing forces interact to shape the lumber market in 2015.

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.