North America Softwood Lumber Market Year-End Update: 2022

As the forest products industry matures into this post-Covid landscape, and the new realities of macroeconomic conditions become more clear, a better picture of cyclical lumber price trends is forming. In the past, solid wood manufacturers were able to rely on a relatively stable seasonal cycle; the beginning of slowdown after Labour Day, with lumber prices dropping until the end of the year. Then more buying in advance of the spring construction season, which brought higher prices usually by February.

Madison's Western S-P-F KD 2x4 #2&Btr Dimension Lumber Prices: 2020 - 2022 (CNW Group/Madison's Lumber Reporter)

Madison’s Western S-P-F KD 2x4 #2&Btr Dimension Lumber Prices: 2020 - 2022 (CNW Group/Madison’s Lumber Reporter)

Madison’s Benchmark Top-Six Softwood Lumber and Panel Prices: Monthly Averages (CNW Group/Madison's Lumber Reporter)

Madison’s Benchmark Top-Six Softwood Lumber and Panel Prices: Monthly Averages (CNW Group/Madison’s Lumber Reporter)

US Total and Single-Family Housing Starts vs. Madison’s Benchmark Softwood Dimension Lumber and Panel Prices: 2019 - 2022 (CNW Group/Madison's Lumber Reporter)

US Total and Single-Family Housing Starts vs. Madison’s Benchmark Softwood Dimension Lumber and Panel Prices: 2019 - 2022 (CNW Group/Madison’s Lumber Reporter)

US Lumber & Construction Material Wholesale Trade Values: 2017 - 2022 (CNW Group/Madison's Lumber Reporter)

US Lumber & Construction Material Wholesale Trade Values: 2017 - 2022 (CNW Group/Madison’s Lumber Reporter)

For the past couple of years that historical annual cycle did not come into play. If the dramatic price increases seen since early 2020 had happened incrementally over the previous decade — for example, up 10% or 15% per year — no one would have thought it unusual. Those price rises were so sharp and happened so suddenly, some people thought that levels must come back down.

Now there appears to be a return of seasonal stability in home buying, in new housing construction, and thus for lumber demand as well. However, there are quite a few changes in comparison to the past. The most important for sawmills is that a new floor for dimension lumber prices has been established.

The main reason for this is because the cost structure for producers has changed completely. Not just general inflation, but more fundamental – structural – changes to the forest industry and sawmilling which have increased operating costs significantly.

Madison’s Western S-P-F KD 2x4 #2&Btr Prices: 2020 – 2022

Shrewd investors know that construction framing softwood lumber prices are a good leading indicator for US housing activity, including home building and home sales. Don’t miss out, get lumber price data updates directly to your desktop every Friday morning .

Understanding of these new realities has emerged, and the forest products industry is looking forward to 2023 as players are wondering what to expect. Opinions range widely about forecasts for price points, but there is general agreement about one thing; the wild volatility of the past two years is behind us. So where are future price swings likely to land?

To Madison’s it seems that Western Spruce-Pine-Fir 2x4 #2&Btr KD (RL) will fluctuate somewhere between US$500 and $700 mfbm. This is because that lower price is very generally the new cost-of-production for most large-volume operators in British Columbia. It is also because industry has become much more savvy since the early-2000s, in terms of responding quickly to market conditions by curtailing production and taking downtime.

The habit in the past of continuing to produce lumber despite big drops in demand, thus keeping supply high and driving prices down, is no longer the usual method of operating. Since the beginning of 2021, facilities across North America have noted dropping demand and have responded by reducing production volumes.

Madison’s Benchmark Top-Six Softwood Lumber and Panel Prices: Monthly Averages

The importance of US housing starts – especially single-family starts – to sawmills cannot be overstated: fully 65% of Canadian softwood lumber sales go to the US, largely for new home building, 10% is sold within Canada, and 6% goes to Japan. Japan lumber purchases are entirely #1/Appearance Grade, or Premium wood, not the standard grade, or #2&Btr, used in North America.

October starts of single-family housing, the largest share of the market and construction method which uses the most wood, were down by -6.1% to a rate of 855,000 units. Single-family authorizations were at 839,000 units, which is -3.6% below the September figure of 870,000 units. Building permits are generally submitted two months before the home building is begun, so this data is as indicator of December construction activity.

Over the past few years, a close correlation has emerged between those benchmark dimension lumber 2x4 prices and US housing starts (both total and single-family).

As this year wanes and 2023 looms ever closer in the horizon, here are some important points to keep in mind, for what can be expected in the coming year

  • new building activity year-to-date remains almost even compared to January - October of 2021;
  • Combined, there was a very high 1.722 million units under construction in October, 794,000 of those single-family homes. This is well above the historical record-high of 1.628 million units that were under construction in 1973. These will eventually become starts and help to underpin new home building data;
  • total permits in August were 1.542 million units, just +7.6% above starts for October. As there is usually a two-month lag between a building permit and a housing start, this data indicates a good momentum for ongoing construction activity;
  • there were 470,000 new homes on the market at the end of October, up from 463,000 units in September. Houses under construction made up 63% of the inventory, with homes yet to be started accounting for 24%. Again, this suggests continued good new home buying thus new housing construction numbers.

US Total and Single-Family Housing Starts vs. Madison’s Benchmark Softwood Dimension Lumber and Panel Prices: 2019 - 2022

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Regarding the lumber market and current prices, into the latter weeks of October mild weather in many of the densely-populated areas of the US provided the opportunity for an increase in construction activity. As such, demand for dimension lumber and other solid wood building materials brought a bump upward in lumber prices, due to limited supply in the field. Sawmills and wholesalers both had been keeping inventories low in expectation of true winter and the end of most housing construction until spring.

As October drew to a close, sawmills in the Pacific Northwest had established order files into the first or second week of November. This is quite strong for the time of year, when lumber demand is traditionally dropping off. As well, significant production curtailments at several large British Columbia lumber producers helped keep supply and demand in balance, also keeping softwood lumber prices flat. Most of these operators cited high log costs vs lower lumber prices as the reason for taking this downtime.

Experiencing drops during the normal seasonal slowdown, in the week ending December 09, 2022, the price of benchmark dimension lumber item Western Spruce-Pine-Fir 2x4 #2&Btr KD (RL) was US$390 mfbm, said weekly forest products industry price guide newsletter Madison’s Lumber Reporter. This is down by -$10, or -3%, from the previous week when it was $400 and is down by -$96, or -20%, from one month ago when it was $486.

Compared to the same week last year, when it was US$750 mfbm, the price of Western S-P-F 2x4s was down by -$360, or -48%. Compared to two years ago when it was $744, that week’s price is down by -$354, or -48%.

US Lumber & Construction Material Wholesale Trade Values: 2017 - 2022

Regarding new housing construction, above all else the most important thing to keep in mind is that the single largest cohort of first-time home buyer right now are Millennials. And there are more Millennials than Baby Boomers, so expectations are for 15 years of robust demand for housing simply due to demographics. Not to mention that US housing was underbuilt compared to population for ten years following the housing crash of 2006.

As well, the existing housing stock is beginning to age out, with a large number of those home at or approaching end-of-life.

Whether for the sustained increase in home-buying demand of those entering their early 30s over the next 15 years, remodelling or reconstruction of aging existing homes, or rebuilding after extreme weather events, the need for solid wood building materials will be unabated in the coming years. As such, lumber prices will continue to be an important leading indicator for residential construction and building activity.

Established in 1952, Madison’s Lumber Prices is your premiere source for North American softwood lumber news, prices, industry insight, and industry contacts. The weekly Madison’s Lumber Reporter publishes current Canadian and US construction framing dimension lumber and panel wholesaler pricing information 50 weeks a year and access to historical pricing as well.

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