Issue link: http://palletcentral.uberflip.com/i/990149
24 PalletCentral • May-June 2018 palletcentral.com n this update, I needed to shift the focus to lumber prices. Since the overall economy is pretty much on track with the last update published in the January- February 2018 issue, I wanted to spend more time on the one situation that is much different than expected and important to pallet producers – the high lumber prices. I will return to the general economy for a brief update on wages and interest rates later. So, why are lumber prices so high? At the end of 2017 lumber prices moved up dramatically. Initially the increase in prices was thought to reflect the forest fires and the imposition of the import duty for Canadian lumber shipped into the United States. The surge was expected to be temporary, but prices have gone even higher in the first half of 2018. As mentioned, two factors pushed prices higher in 2017. First, there were massive forest fires, particularly in western Canada that curtailed production and logging. Second, there was the 20% duty imposed on U.S. imports of Canadian lumber. According to Random Lengths, the price for Canadian lumber represented by the Western Spruce Fir (SPF) 2x4 price jumped from $310/thousand board feet (mbf) in January of 2017 to $460/mbf in December. The 48% jump in prices was a bit shocking, but could be explained by those two factors. With demand expected to remain relatively flat and a rebound in production given high profit margins, market prices were expected to fall back to levels consistent with underlying production cost in 2018. But that did not happen. SPF prices moved even higher this year. The last report by Random Lengths puts the SPF 2x4 market prices at $598/mbf – or roughly double the price in early 2017. The U.S. lumber prices (Douglas fir green 2x4 and the Southern Yellow Pine 2x4) have followed. The culprit for the surge in price is not higher lumber demand. The domestic consumption for lumber in the U.S. and Canadian markets has not increased that much in 2018. With housing starts expected to continue improving at a slow rate, demand does not go much higher in 2019 either. Part of the increase in domestic demand has been offset by declines in lumber exports to China. Russia and New Zealand have been displacing U.S. and Canadian lumber in that market due to the higher prices. The surge in prices is also not due to extremely high operating rates. Lumber capacity in North America (U.S. plus Canada) is estimated to be about 75 billion board feet. With demand near 68 ECONOMY By Lynn Michaelis S u p p l y D i s r u p t i o n s I Drive Lumber Prices