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Lumber’s Upward Volatility to Continue in 2014

Source: Widman’s Market Barometer

December 18, 2013

This has been a volatile year for lumber prices. A strong rise early in the year was followed by a significant drop as we approached mid-year; now prices have recovered as we approach year-end. We expect lumber prices to rise by an average of 18% this year, and this is just the start.

As discussed throughout this forecast, forest product prices may be the elephant in the room next year. Some analysts believe we may be at the start of a “super-cycle” caused by strong demand and limited supply. Look at the factors that are now in play. On the demand side, there is the U.S. housing recovery and China. On the supply side, look at BC, which has seen its production cut by five billion bf in eight years.

Furthermore, in a number of other areas within North America, the potential for real expansion has passed. There is no doubt we will continue to see higher prices. The question remains: for how long? Supply and demand in forest products features a worldwide ebb and flow. If North American lumber becomes too expensive, look for the re-entry of European wood into the North American market, and an increase in logs going to China from Russia, New Zealand, Australia and Chile; there could also be an increase in the use of alternative products such as steel studs.

In the coming year, we are expecting prices to increase by a further 15%–20% above and beyond the 18% increase of 2013. Furthermore, for Canadian producers, the falling loonie should help their bottom lines even more. In addition, the U.S.–Canada lumber dispute may get a new lease on life.