SEPTEMBER 22, 2016: Lumber and log prices have fallen markedly since peaking in 2014. Random Lengths’ Coast Dry Random and Stud composite lumber price peaked at $393/mbf in January 2014 but fell throughout the rest of the year to average $373/mbf. The composite lumber price continued to fall to average $311/mbf for 2015. Prices have averaged $326/mbf from January to July 2016, with the last four months averaging $341/mbf.
The increase in prices in 2016 appears to have been initially driven by much higher first quarter housing starts compared to 2015. This spiked lumber demand and caught lumber dealers off-guard. Prices were expected to pull back in the third quarter, but as of July this had not happened. Prices are now expected to spike in September due to a potential trade dispute with Canada as a result of the expiration of the Softwood Lumber Agreement (SLA). Prices are expected to fall in the fourth quarter before increasing again in the beginning of 2017.
Through 2015 the price of a `typical’ DNR log averaged $521/mbf, falling from the $591/mbf average in 2014. The average price for 2016 is largely unchanged at $522/mbf through July. The decline in 2015 was primarily due to the dramatic slowdown in demand from China and an ample regional supply of both logs and lumber. Log prices are expected to remain flat through 2016 and begin increasing in 2017 with an increase in lumber demand.
A continuing downside risk for the forecast is timber and lumber demand from China. While it seems that a decrease in demand has largely been accounted for in the current market prices, and the export volumes of logs and lumber has largely stabilized, the Chinese economy continues to have issues. There is continuing concern that the slowdown in China could become dramatically worse.
In the November 2015 forecast, we noted that the expiration of the Softwood Lumber Agreement posed a major downside risk to the forecast because the expiration of tariffs might allow a flood of cheaper Canadian lumber into the US, suppressing domestic prices. Though the expiration of the SLA has likely held down prices, it has not resulted in the dramatic price drops that some feared. Current expectations are that the SLA situation will cause an unseasonal increase in prices in September, which will fall back until early in 2017.
Robust growth in U.S. housing demand would provide much needed, if unlikely, high-side potential. This has not yet eventuated, despite strong employment growth for the last two years. The lack of housing demand is likely due to a number of impediments—persistently stringent lending standards, a continued tough labor market for younger workers, student loan debt, and general malaise—all of which are lessening, but none of which show signs of completely abating just yet.