usa

US Market To Cool Down

Article by Russ Taylor, President of Russ Taylor Global | 04.08.2022 - 09:30

US lumber prices (using W-SPF 2x4 #2&Better, random lengths, FOB BC mill, as the basis) peaked for the year back in mid-March 2022 at US$1,400 per thousand board feet (€895/m3) and bottomed at US$555 (€355/m3) in mid-June – a 60% collapse in three months. Prices then moved higher to peak at US$670 (€428/m3) in mid to late July but were starting to move lower at the end of July. The question asked by many is: where are US lumber prices going for the rest of 2022? 

I addressed this question back in May and suggested that W-SPF prices would fall back into the mid-$500s (€350/m3; approximately €440/m3 delivered US East Coast) by late August or early September. Ironically, that is exactly where mid-September Lumber Futures are pegging US lumber prices (as of late July at the time of this writing). Looking ahead, the outlook for US lumber prices can include both positives and negatives as to where they could be heading over the next three to five months. 

Positives:

  • There is a large (1.5 to 4.0 million units) housing shortage in the US that needs to be built.
  • Millennials are reaching their prime ages for purchasing homes.
  • US homeowners have huge equity in their homes. With an old US housing stock (a record ~42 years for the average home), owners can afford to conduct more repair and renovation work.
  • There is low unemployment, so stable or better job opportunities are available for homeowners to support mortgages and renovations.
  • There are still supply chain issues, difficulties with rail and truck transport and a tight supply of North American lumber production that are assisting to keep low field inventories of lumber.
  • Many BC sawmills (15% of North America supply) are still running only three to four shifts per week due to poor transportation/logistics availability and are facing the highest production costs in North America (estimated at over US$600 per thousand board feet; €385/m3, FOB mill) due to government timber fees.

The above factors suggest that demand could be steady through the rest of 2022 against a constrained supply base. 

Negatives:

  • US housing starts dropped 2% month-over-month to an annualized rate of 1.56 million units in June of 2022, the lowest since September 2021 and well off the 2022 peak of 1.81 million units in April. Annualized monthly housing starts are now expected to move lower to around 1.5 million units (or lower) by the end of 2022 from increasing headwinds that will decrease housing demand and home construction.
  • Soaring inflation and rising mortgage rates are causing home buyers to delay or cancel home purchases and, in more cases, repair and remodelling projects.
  • Home builder and consumer confidence are plummeting, where the NAHB/Wells Fargo Housing Market Index has dropped seven months in a row.
  • US existing house prices are still going up, although the number of housing sales are now dropping quickly, and existing home inventories are moving higher (signalling a further drop in sales and eventually home prices).
  • The import tax of 18% on Canadian lumber shipments to the US is unnecessarily driving up the consumer price for lumber and adding to inflation.
  • And other housing and economic news points to a slow down in the US market for the rest of 2022 and into 2023. 

These two opposing forces create lots of scenarios and risks for the US market going forward. However, with much higher log costs in Central Europe and the prospects of lower US lumber demand and prices ahead, European exporters need to be more cautious in their strategies of selling to the US market. However, my estimate is for US prices to move modestly higher in fourth quarter before the real impact of a potential US recession hits (following one that is expected first in Europe), most likely in 2023-Q1. Be prepared for more uncertainty and volatility ahead! 

Russ Taylor
Russ Taylor Global