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Builders breathe sigh of relief as lumber prices fall

Price for B.C.'s western spruce, pine and fir had fallen 52 per cent to US$760
(via Pixabay)

The squeeze of soaring lumber prices looks like it will be easing for contractors such as Langley's Chad Sayers, although the fall in commodity prices from stratospheric heights hasn't flowed through to them just yet.

“Those are starting to show up,” said Sayers, owner of Sayers Contracting, but “the biggest thing I'm starting to notice right now is that my supplier is able to lock me in for prices for a project for at least two weeks or more.”

For now, lumber yards are likely still sitting on inventory they scrambled to secure at much higher prices in the run-up to a peak of US$1,611 per thousand board feet of western spruce, pine or fir two-by-fours in May, according to industry analysts.

“I know we'll never see the prices we did pre-COVID with (building) materials, ever,” Sayers said, but the relative stability of being able to quote clients a price he knows isn't going to rise is welcome.

Prices soared to unprecedented heights thanks to the convergence of a U.S. homebuilding boom, a pandemic-inspired surge in home renovations, and disruptions in supply due to COVID-19 shutdowns in the early months of 2020.

But that peak didn't last long as U.S. homebuilders reached a standoff with producers, said Keta Kosman, publisher of the industry news source Madison's Lumber Reporter, which tracks benchmark prices for commodity lumber.

“So pricing hit US$1,611 and stayed up there for a little while, but not a lot of sales,” Kosman said. “And then it slid by a lot.”

The price for 1,000 board feet of lumber is an industry benchmark. As of July 9, Kosman said, the price for B.C.'s western spruce, pine and fir had fallen 52 per cent to US$760, where it has been for at least a couple of weeks.

“We're kind of thinking that maybe this is like a supply-demand equilibrium that we've gotten to,” she added, but it is dif­ficult to forecast whether prices have room to fall further, or might rise again based on still-strong U.S. housing demand.

The rocket-like climb of lumber prices turned the usually bland commodity into a market sensation in the spring. Bloomberg reported that lumber futures contracts traded as high as US$1,734 per thousand board feet, four times higher than their value a year ago.

Now, from the perspective of commodity brokers, the drop has wiped out all of lumber's gains and prices.

And the fall hasn't been an unexpected collapse for B.C.'s big lumber producers, which have cashed in on the rise, but understood the unique convergence of events that touched off the explosion in prices wouldn't last.

Companies have not yet reported second-quarter financial results, which will reflect peak prices for lumber, but producers such as Canfor and West Fraser Timber have used some of their windfall to reward shareholders with share repurchase plans.

Canfor, which earned a net profit of $434 million in its first quarter based in part on record lumber sales, announced on June 14 that it would buy up five per cent of its outstanding shares.

West Fraser, which earned a first-quarter profit of US$665 million, said on July 7 that it would spend up to $1 billion to buy back shares, and increased its dividend by 25 per cent to 25 cents per share.

However, industry representative Susan Yurkovich said the stratospheric prices were “an aberration,” and values “will come back down, and that's what's happening.”

“That was an unsustainable pricing level,” said Yurkovich, CEO of the Council of Forest Industries. “So you've had people step out of the marketplace because they're just not going to purchase at that level.”

At Metro Vancouver lumber yards, prices are “not coming down as fast as (they) went up, so you won't see the return just quite yet,” said Josh Cabral, with Vancouver retailer Dunbar Lumber.
Products that sell in higher volumes have seen prices come down, versus lumber types that are more specialized and were acquired at higher prices. But Cabral said the declines haven't been huge.

“A two-by-four that was $13, right now it's $9.70,” Cabral said. A year ago, it might have been $5.

Cabral said Dunbar Lumber has remained busy, but in the U.S. a big drop in demand from retailers that serve the home renovation market has also contributed to the price drop, according to Bloomberg.

“You've got post-COVID consumer behaviour occurring,” Yurkovich said. “People aren't building a deck in their backyard and fixing their basement. They're going out to restaurants and travelling.”

Yurkovich characterized the spike in prices as a market “over-correction at the top,” and they might be “heading toward an over-correction at the bottom,” but likely not to depressed levels seen prior to the pandemic.

At Madison's, Kosman's opinion is that lumber was previously undervalued, because American homebuilders weren't keeping up with demographic demand for new housing.

And B.C., which produces about half of Canada's lumber exports, is starting to run short of timber supplies as forests recover from mountain pine beetle infestations that devastated Interior forests.

“Over the next couple of weeks, we'll see if this price is going to plateau where it is, or if it's going to have another drop,” Kosman said. “It's also possible that prices will go back up. We'll see what the housing starts (say)."