When will retail prices reflect lower market prices?

Timber! Lumber prices to fall. When will we see a drop?

Written by Ryan Forbes Tuesday, Jun 28 2022, 5:13 AM

If your deck needs replacing this summer, lumber experts say you should wait a few months until a significant drop in lumber prices hits your local hardware store.

The cost of building or renovating your home could drop by up to 50 per cent this summer.

The average price of lumber in Canada rose by roughly 300 per cent between 2020 and 2021, largely fueled by a boom in home construction and renovation projects during the COVID-19 pandemic, sawmills reducing production levels and supply chain issues.

Lumber prices continued to fluctuate in early 2022 with rises and dips in demand. At the wholesale level, prices peaked in early March but began to slide through early June, and experts say the ‘lumber bubble’ is now set to burst sometime this summer.

“Retail prices should drop. Absolutely,” says Paul Jannke, Principal in Lumber for Forest Economic Advisors LLC, a North American wood products analysis company.

“It does take about three to four months for wholesale prices to feed through to retail pricing. So, I would think sometime fairly soon over the next month or two, we should start to see lower prices at the hardware store as well. From a retail perspective, it could be August.”

Jannke says wholesale prices have declined by 60 per cent since their peak in March, but notes retailers may not offer the same discount due to their slim margins. But he estimates that price drops of 30, 40 to 50 per cent are all possible.

“You won’t see the same 60 per cent decline in prices because retail margins will need to expand a little bit as well. As the retail price increases, retailers also eat some of the higher costs and they won’t want to do that. But a drop is coming.”

Jannke notes many mills shut down to perform maintenance in early July, which can temporarily limit lumber supply. That, as well as an annual increase in demand over the summer months, may increase prices at the wholesale level in July and August, delaying the potential 50 per cent drop to the fall.

“We wouldn’t be surprised at all if on the retail side, it actually ends up taking into late August or early September before we start to see the Q2 price decreases on a wholesale level feed through to the wholesale side. If it’s not here by August, you’ll see it late in the third quarter. So, September, October, November, you’ll definitely see prices coming off,” says Jannke.

It’s been estimated that throughout the COVID-19 pandemic, the additional costs of lumber could have added up to $30,000 in costs to the construction of a new build in Canada. So, Jannke says if you can wait to build or renovate, you should do so until the potential 50 per cent price drop hits your area.

“So, if it were me and I was looking to do a project that I had the potential to delay on, I would delay until late in the third quarter or early in the fourth quarter. Even if prices do start to come off now, we’ll see them start to come off more sharply later in the year. I would wait until later on in the year until the demand goes down seasonally and some of these lower prices start to feed through,” he adds.

Elsewhere in the lumber industry, a 40-year dispute continues between two of the largest exporters and importers of softwood lumber around the world, Canada and the United States of America, but the issue could be resolved by August.

Former U.S. President Donald Trump imposed a 20 per cent tariff on Canadian softwood lumber prior to the COVID-19 pandemic, but tariffs were later lowered to 8.99 per cent after a decision from the World Trade Organization in late 2020.

The U.S. places tariffs on Canadian lumber imports to raise its price at the retail level to encourage customers to purchase American-made wood instead. It’s estimated the U.S. produces 70 per cent of the lumber they purchase annually, with the majority of the remainder coming from Canada.

Then in late 2021, President Joe Biden announced they would be raising duties back to 17.9 per cent, with a 29 per cent increase for Ontario’s Resolute Forest Products. But by February 2022, the U.S. said tariffs could come down to 12 per cent across the board, but a decision won’t be made until August.

Jannke adds that decision will likely influence the cost of lumber this fall, as well.

The two countries’ dispute over the fairness of the tariffs has been ongoing since 1982. But despite the longstanding feud, Canada exports about $8 billion of softwood lumber each year, which the U.S. remains the largest buyer of.

Ontario ranks third with roughly 8,500 employees in the forestry and logging industries, only behind Quebec and British Columbia.

The Ontario government says northwestern Ontario communities depend on forestry for their livelihood, and employment dependency on forestry in Kenora is six times higher than in the rest of Ontario.