Historical context for lumber prices
July 22, 2013
While the 142% increase in the benchmark Random Lengths softwood lumber composite price from November 2008 to April 2012 has indeed been welcome in an industry still recovering from the collapse of the U.S. housing sector, an inspection of North American softwood lumber prices since 1981 suggests that this price increase has neither been particularly rapid, nor reached new heights.
Random Lengths softwood lumber composite price – adjusted for inflation (US$/MBF)
In this figure, the familiar Random Lengths Composite Price has been converted to May 2013 dollars using the U.S. All-Item Consumer Price Index. When considered in real terms, current softwood lumber prices have almost returned to their 30-year average. Within this broader context, the most striking point becomes not that the recent spike in prices was so high, but that prices are at average levels despite U.S. construction remaining decidedly below average.
While analysts have good reason to believe that softwood lumber prices will reach high levels (at least US$500/MBF), note that when adjusted for inflation this reflects levels not-uncommon in the 1990s. Further, the various long-term supply and demand factors driving North American lumber markets into a period of sustained higher prices remain at least two years away from becoming solidly established. Forward looking sector stakeholders should be actively preparing now for likely spin-off effects of a “super cycle” (e.g. historically high levels of lumber imports from Europe, increasing emphasis on United States markets, etc). However, in the meantime, one can expect markets to be characterized by on-going price volatility.
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