Lumber prices go in cycles, and those of you currently building may have noticed that right now prices are on the rise. Prices are currently around $400 for one thousand board feet of lumber (mbf), their highest since 2005. That is up 18% from 2012 and prices are expected to keep rising. Here are some of the reasons for these increasing prices:
Growing U.S. Housing Market
The housing market is rebounding and American’s are more confident in the housing market. Because of this more individuals are building houses or renovating their current homes. This calls for lumber for framing, floors, cabinets, and trim work.
Increasing Demand from China
Some companies are unable to keep up with the huge demand for lumber from China. In just 6 months, China’s total imports increased 26%. China’s economy is turning from an emphasis on manufacturing to a slight lead in the service industry. This has resulted in a middle class of over 300 million people and they are looking to build.
New Markets in India
India’s demand for imported lumber is forecasted to more than double in the next 8 years. This increased demand will make India the world’s largest lumber importer after China. The main reason for this huge increase in demand is the limited space and resources available in India. Companies are not allowed to own large amounts of land and, therefore, can’t plant the trees and produce their own lumber.
Natural disasters also have an impact on the demand for lumber. It has been three months since Hurricane Sandy hit the east coast and there is still a lot of work to be done in rebuilding. Both home owners and businesses that were affected by the hurricane are expected to require 1 billion fbm (foot, board measure) per year until 2015—that’s roughly equivalent to framing about 71,400 houses that are 1,800 square feet.
Basic economic classes taught us that high demand for a product and low supply will result in rising prices, and this is exactly the case in the lumber industry. Because of the hits that the lumber industry has taken over the past several years, 146 mills have closed since 2008. These mills represented 19% of the nation’s production capacity. Now that demand is on the rise, the existing mills are having a hard time keeping up with all the orders.
Beetle infestations in Canada are also causing problems in keeping up with the demand. Around 1.3 million hectares (1 hectare=100 acres) of forest has been affected since 2001. Canada isn’t alone in this problem—18 states have reported the appearance of Asian beetles since 2002. Hundreds of thousands of acres of forests have been affected by this and other beetle species.
Will lumber prices continue to rise as some are predicting or will mills be able to increase production to keep up with demand? Only time will tell.
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A Cypress Homes, Inc. Blog