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Hurricane Pushes Up Lumber Prices, While Fundamentals Point to Longer-Term Rise

Weather-related bums typically cause 10% hike for two months. That's on top of general supply constraints.

Lumber prices are rising again this fall after a sharp summer-long decline, prompted short-term by Hurricane Florence and longer-term by supply shortages amid rising demand.

A senior lumber buyer with 28 years of experience says that if the hurricane-driven rise in Southern yellow pine prices that he's seeing now follows past patterns, prices will rise about 10% and last at that higher level roughly two months. That's because hurricanes don't just shut down mills; they also cause people to skip work as they repair their own homes and lead to new orders for mills in unaffected areas--assuming they have the ability to increase capacity.

This week's rise comes after a summer in which, according to Random Lengths, prices for framing lumber fell from this year's peak of $582 per thousand board-feet to $440 on Aug. 10, and then have bumped up to $453 as of Sept. 7. If recent years are a guide, those prices won't be that low again for the rest of this year.

"Lumber prices look to be heading higher and are still sitting at levels that have hardly ever been reached before (with the exception of earlier this year)," Russ Taylor, managing director of Forest Economic Advisors-Canada, wrote in the August issue of his Wood Markets report, a subscription publication just made available to the public on Sept. 10. "The key fundamentals still point to a very tight lumber supply in North America, with our analysis indicating that total North American demand (to the end of 2019 at least) can be met only through rising volumes of offshore imports, i.e., requiring high prices. This is despite the 4 billion to 5 billion board-feet of new capacity additions planned for the U.S. South in the next two to three years."

That bottoming out appears to be related in part to forest fires in Canada, which Taylor describes as so pervasive that "most of British Coumbia and across Western Canada are looking apocalyptic." According to the British Columbia Wildlife Service, there have been 2,061 fires in the province so far this year covering 3.3 million acres.

Meanwhile, Taylor says, a fellow Forest Economic Advisors staffer is noting that three of four major lumber regions in North America are producing near their capacity limits, and anticipated growth in demand is expected to exceed the increased output increase expected from new sawmills coming on line.

"As we’ve indicated for some years now, the North American lumber supply chain remains fragile, and any disruptions will only cause more price volatility," Taylor says. " Therefore, we foresee prices moving higher in the short-term (until supply and demand become temporarily rebalanced)."

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