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Lumber market and prices

Lumber prices falling mercilessly – 50 percent drop on global market

am Freitag, 03.06.2022 - 18:00 (Jetzt kommentieren)

Lumber prices on the futures market have fallen by almost 50 % since the beginning of this year. This week, prices have dropped significantly further. This trend has not reached physical markets yet. Analysts say, this is only a question of time. The reasons for the drop in prices are hotly debated.

lumber prices

Lumber prices on the Chicago futures market have dropped by 7 percent on Wednesday, 1 June 2022, alone. All in all, this week saw price drops by 12 percent. The most important construction material for the building industry and other sectors has fallen to a new yearly low of 608,06 USD per 1000 board feet.

Since the beginning of 2022, lumber prices have seen a massive drop by 47 percent in total. They are currently 65 % below the record levels of 2021 – where they stood at 1733 USD per 1000 board feet. This drastic fall in prices is expected to resonate on lumber prices on other important international markets, too. Over the medium-term, European export prices for lumber are likely to give way substantially.

US-analysts are saying that the drop in lumber prices is expected to reduce the massive inflationary pressures on the US housing market (but also in Europe), as construction prices will gradually come down. How fast this will happen and how strong this drastic fall in prices on the global market will lead to lower prices on European and German lumber markets, cannot be said with certainty yet.

Rising interest rates, lower purchasing power, bigger supply

American analysts are also saying that the drop in prices is being caused and accelerated by rising mortgage interest rates. These have recently risen to multi-annual highs both in the USA and in Europe. These higher debt servicing costs have – at least in the USA – contributed to cooling the housing market, with significantly lower sales of both newly constructed and existing houses.

The consequences: The supply on north American lumber markets is growing substantially (some analysts are already speaking of a lumber glut), since inventory levels both in sawmills and hardware stores have increased significantly. This noticeable expansion in supply of lumber should, according to US-analysts, lead to a continuous downward-spiral of lumber prices, unless demand should pick up quickly. But this does not appear to be the case. Rather on the contrary.

High inflation in all areas of life is forcing buyers and sellers of lumber to cut costs. This is having consequences on both construction timber and housing demand. Lumber buyers in the US have apparently already reduced their orders significantly and sawmills are beginning to lower their prices, while inventory levels are continuing to rise – according to a current report in the Wall Street Journal.

Supply-chain problems not gone, Russia missing as exporter

Some analysts are however expressing their scepticism, where the strong decrease in lumber prices in an extremely inflationary environment is concerned. Lumber prices have started to slide, but it will take some time before these drops reach end users, says another US-analyst.

He showed himself convinced that the drop in supply or the rise in demand would have to continue for some time before lower prices would trickle down in the supply chain. However, according to the analys, prices on futures markets are likely to fall further because investors and consumer recognise that production will increase again.

Despite all bearish signals, current demand is relatively stable so that there are no reasons for producers to cut prices swiftly and decisively, the analyst continues. This will happen only when they see a genuine fall in orders. Given the developments described above, this can happen faster than some observers may think.

The global supply-chain crisis in the last annual quarters has had quite substantial consequences on international lumber trade and lumber prices. International lumber traders therefore assume that supply-chain problems will persist for at least some months. The war in Ukraine and the export embargo against Russia, which affect lumber as well, are factors usually seen as preventing a quick drop in prices.

A German version of the article in available below.


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