Supply and Demand Issues Continue to Trip Up Lumber Sector

Even as prices keep falling for lumber and lumber futures, some sawyers are countering with reduced production.

Not in recent memory have prices for wood been as volatile as they are now, with political relations between the U.S. and Canada, tariffs, lower demand in the home building sector and producers reacting to all of this making for uncertainty and pricing confusion.

The latest development occurred earlier this month when futures pricing of lumber dropped 23 percent from their three-year high in early August, falling to $535 per thousand board feet. This follows several years of ups and downs, largely the result of housing starts volatility that began during the pandemic and continued in the more recent era of higher inflation and interest rates.

Spot prices are down too, according to trade publication Random Lengths. Its Framing Lumber Composite Index has declined about 12% since August 1. 

In the meantime, two of North America’s biggest sawmills have said they would be dialing back their production, which slowed the pricing falloff. Interfor, the third-largest lumber producer in North America, said it would be cutting production by 12 percent at its sawmills in the U.S. South, Pacific Northwest, British Columbia and eastern Canada. Another big sawyer, Domtar, producer, said it would be cutting back at two of its facilities, one in the US. and one in Canada.

And there will likely be more such cutbacks. “We anticipate further closures or curtailments,” Truist Securities analyst Michael Roxland was recently quoted in the media.

Further exasperating the situation is an excess of inventory in the U.S., according to one source. Matt Layman, a market analyst and publisher of Layman’s Lumber Guide, in a published report said, “There is easily enough wood on the ground in the U.S. to cover several months of anticipated fall demand.”

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