Selective Cuttings

Wood product prices continue to rally

January 15, 2013

Despite the fact that North American solid wood product consumption remains at less than 60% of historical underlying demand, composite softwood lumber and structural panels prices have continued their 6-month rally and surpassed heights not seen since the peak of the U.S. housing bubble.

North American structural panel and softwood lumber prices (2003-2013)

This graph shows weekly North American prices for structural panels and softwood lumber from 2003 to 2013. These prices collapsed in 2006. Since that time they were low and flat, subject to some volatility. However, since July 2012 prices have been rapidly rising, surpassing highs not seen since May 2005.

This past week, both price series breached highs not seen since May 2005. As previously noted, this price strength is primarily the result of supply discipline by North American producers, who have been reticent to invest in re-opening idled capacity or add shifts at operational mills due to significant risk aversion in the aftermath of the U.S. housing bubble. Given recent announcements and the lead time necessary to either add shifts or re-open capacity, it is now widely expected among private sector analysts that prices will remain high (subject to some volatility) through the first six months of 2013. Furthermore, supply chains throughout the U.S. construction sector remain very tight. Factor in that rebuilding the supply chain could add up to 10% to overall consumption, and 2013-2015 seem likely to be very profitable years for North American solid wood product manufacturers who have access to fibre.