What’s Causing the Historic Increase in the Price of Lumber?

Written by Morgan Kaenzig de Denus, AMAST Content

In the past year, the price of lumber has skyrocketed. In March of 2020, the Random Lengths Composite Index closed around $460 per 1,000 board foot of lumber. This March, the Random Lengths Composite Index closed at around $1,300 per 1,000 board foot of lumber. While this drastic change can feel like it came out of nowhere, there are several driving factors behind the rise in the cost of lumber.

COVID-19

The most obvious cause of lumber’s high price is the pandemic. COVID-19 has changed the world, including the cost of lumber. The price to construct a new single-family home has increased by over $24,000 in the past year, and much of that price increase is due to the rising cost of lumber. The demand for wood has been high, while the supply has been low, resulting in an imbalance and rising prices.

The Demand Has Been High

In the last year, people have spent more time at home than ever before. They have had more time for renovations and DIY projects, which means they need wood. Home centers generally receive a certain percentage of a mill’s supply. However, during the pandemic, home centers have stocked more lumber than usual, which has contributed to the rise in lumber prices.

People haven’t just been renovating their homes. With the ability to work from home and the desire for more space, many individuals took advantage of the lower mortgage rates and bought homes or decided to construct new ones. These larger projects further depleted the supply of lumber and contributed to the rise in the cost of lumber.

The Supply Has Been Low

In addition to the increase in demand for lumber, the industry has faced a shortage in supply over the past year. This shortage is partially due to the pandemic and the resulting labor problems and supply chain disruptions.

At the onset of the pandemic, lumber mills and factories were shut down. When they reopened, they had new social distancing guidelines and could be closed if any employee tested positive for COVID-19. Demand was spiking due to the increase in DIY projects, renovations, and construction projects, and the lumber industry couldn’t keep up.

The Mountain Pine Beetle

The pandemic isn’t the only culprit behind the soaring price of lumber. The Dendroctonus ponderosae, or the mountain pine beetle, has also contributed to the low supply and rising cost of lumber.

These beetles attack many different kinds of pine trees, including ponderosa, lodgepole, whitebark, limber, jack, and western white. The female beetles eat galleries into a tree’s inner bark. They lay their eggs there and, once the eggs hatch, the larvae continue to eat the tree. Once they are grown, the beetles will look for new trees. They can relocate to a tree over sixty miles away from the one they were born in, making the spread of Dendroctonus ponderosae widespread and difficult to control.

The Mountain Pine Beetle in Canada

Most notably, the mountain pine beetle has devastated trees in British Columbia. Since the 1990s, the Dendroctonus ponderosae has been responsible for attacking half the commercial lodgepole pine in British Columbia! These beetles have affected over 18 million hectares of forest, and their population has only been growing. Their population boom is most likely due to global warming, since they thrive in warm summers and mild winters.

What Happens Next?

While it’s impossible to say what will happen next, Dustin Jalbert, a specialist in wood prices at Fastmarkets RISI, believes a lumber correction may come later this year. If the vaccination rollout is successful, mill production may ramp up again. As people begin to travel or return to work, they’ll spend less time at home and have fewer DIY projects. As a result, the demand for and cost of lumber will decrease while the supply will increase.

Sources

Giardinelli, C. (2021, April 02). What is Driving the Historic Increase in Lumber Cost? Retrieved April 3, 2021, from https://ktvl.com/news/local/what-is-driving-the-historic-increase-in-lumber-cost

Government of Canada. (2020, September 21). Mountain Pine Beetle. Retrieved April 03, 2021, from https://www.nrcan.gc.ca/our-natural-resources/forests-forestry/wildland-fires-insects-disturban/top-forest-insects-diseases-cana/mountain-pine-beetle/13381

Lambert, L. (2021, March 22). Lumber Prices Are Up A Staggering 188% — When Will The Wood Shortage End? Retrieved April 4, 2021, from https://fortune.com/2021/03/20/lumber-prices-2021-chart-when-will-wood-shortage-end-price-of-lumber-go-down-home-sales-cost-update-march/

Sheffey, A. (2021, March 18). Surging Lumber Costs Have Increased the Average Cost of a New House by $24,000. Retrieved April 3, 2021, from https://www.businessinsider.com/real-estate-homebuying-soaring-lumber-prices-new-homes-construction-2021-3

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