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Look For A Summer Rally In Lumber Prices

Using SPF 2x4s as a proxy for all lumber prices, the normal pattern is for a seasonal low to occur in October followed by a seasonal high in February. This year has been different in that prices have been trending lower since a high in November 2013. SPF 2x4s peaked at $385 per MBF in mid-November and are now at $314.

The main reason for this price action was the severe winter weather, which slowed home construction activity and interfered with some mills ability to ship lumber to their destinations. Also, the 28 day truckers' strike at Port Metro Vancouver that began on February 26 interfered with exports of lumber to China, contributed to a buildup of inventory at some mills, and this put additional downward pressure on prices.

In addition to this broad tendency for prices to bottom in October and peak in February, there is a normal but less significant tendency for prices to rise from June to August. This year a summer rally might be more significant than normal because of the preceding price weakness going all the way back to November.

Buying by lumber yards, that might ordinarily have already taken place in a normal year, may now happen during the summer. Also, exports to China may be higher in the next several months because of the lower shipments earlier this year due to the port strike.

Available data related to some of the significant supply and demand fundamentals for the U.S. and Canadian lumber market this year vs. last year is as follows. Combined U.S. and Canadian lumber production through March is about unchanged. Demand for lumber through April for U.S. housing starts, which takes into consideration the mix between single family and multi-family units, is up about 3% this year, while combined shipments through April from the U.S. and Canada to China is down about 9% this year. However, the volume of lumber used in housing starts is much higher than the volume exported to China, and when you combine these two important forms of demand, the volume is about unchanged from last year.

Over the next three months I believe SPF 2x4s could rise perhaps $30 from the current price of $314 to $344. In fact last year from a sell-off low of $298 at the end of May prices rose $30 to $328 at the end of August and continued to rise to the previously mentioned high of $385 in November.