Builders reduce lumber purchases – UW GROUP

Builders reduce lumber purchases

With U.S. lumber prices at fresh record highs, construction companies and wood wholesalers are buying just enough to get by, threatening to make price swings even bigger.

Lumber futures in Chicago reached a record $855.10 per 1,000 board feet on Tuesday, having surged more than 30% since Jan. 12. This price surge during what is typically a winter lull has surprised the industry, raising home-building costs and forcing many buyers to purchase only their immediate needs. That may filter through to housing prices, while also increasing earnings at lumber companies such as Weyerhaeuser Co. and West Fraser Timber Co.

“Everyone knows that current prices are stupid but the choice is either pay up or run out,” Vince Bulic, president of Vancouver, British Columbia-area Yaletown Lumber Industries Ltd., said in a Jan. 22 note. “Comfortable prices do not seem to be on the near-term horizon.”

Record-low borrowing rates and an exodus from major cities triggered a homebuilding spree, with U.S. home construction starts in December reaching the fastest pace since 2006, while lockdowns also spurred demand for home renovations. At the same time, mills couldn’t ramp up fast enough to keep available supplies from being drawn down.

Prices on the market have largely tracked the rallies in futures prices, with some time lag, signaling higher prices are yet to come for buyers.

U.S. lumber wholesaler and distributor Sherwood Lumber Co., which was founded in 1954, experienced one of its busiest Decembers in terms of volume sold and this activity has continued into this month. Not only are buyers facing higher prices from mills, but their delivery times have doubled, said Kyle Little, Sherwood’s chief operating officer.

“For the vast majority, it’s very nerve-wracking,” Little said. “They’re trying to discover prices in a highly unstable environment because of accelerated demand.”

As a result, “the majority have taken an apathetic approach” and are buying less than usual, with many carrying just 30 days worth of inventory as prices move wildly and speculation proves difficult, Little said. “It continues to feed this fire. We’re on this unfortunate treadmill cycle.”

While some fear there may not be enough lumber for upcoming spring needs, analysts see signs the market stress will ease as the year goes on. Between 2019 and 2022, roughly 4.8 billion board feet of new capacity is scheduled to come on line in the South, which is ready to fill demand, said Joe Sanderson, managing director of natural resources at Domain Timber Advisors in Georgia.

“A lot of mills have expanded hours, increased capacity and are doing additional upgrades,” he said in an email. “Additionally, a lot of Canadian sawmills are moving to the south and that capacity is coming online already and should be in a good position to take advantage of the reduced Canadian harvest.”

Lumber prices are expected to “downshift gradually by year-end” Omar Abdelrahman, economist for TD Economics, said in a note on Tuesday. “Unusual gains in lumber markets are expected to ease as supply continues to respond to the attractive price environment.”


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