Lumber Market Pricing

“What’s going to stop this market?!” is among the questions that lumber traders are pondering these days. Could softwood negotiations be the determining factor? What if the U.S. Department of Commerce throws out the case? More weather-related factors? This time, snow? Salvage logging? Traders taking a position, a stand, …or, a knee?

Back in 1994, when Michael Carliner was Staff VP for Economics at the National Association of Home Builders (NAHB), he wrote What’s Driving Lumber Prices?. In the article, it’s noted that changes in inventory levels create expectations on future levels of activity. It’s accepted that expectations about future supply and demand are key determinants in short-term behaviour of market participants. We’re told that rising prices, such as have been experienced, may of themselves create expectation of further price increases, causing speculative behaviour.

Carliner points out that historically, prices of lumber have not increased gradually with increased demand and constrained supply. Instead, data suggests an erratic pattern of booms and busts that are largely attributable to changes in expectations about future supply. Historically when supplies were not so uncertain, changes in housing statistics and other demand factors were reportedly less pronounced in their impact on short-term market pricing. We’re told that price spikes occurred when market participants were subject to uncertainties in policy, litigation impacting trade, plus the many additional factors that historically impact timing between a tree being felled and being delivered as lumber to market.

What’s different now?

The run-up in lumber prices over the past few months contains some short-term speculative elements, but the underlying trend is toward higher average prices.
– Michael Carliner, Housing Economist (January, 1994)

On this National Tree Day, any image of a tree is music to our ears! Hat Tip: Al Harder (Source: boredpanda.com)

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