This article originally appeared on BUILDER's sister site, ProSales.
After the lumber price declines in the second half of 2018, the Forest Economic Advisors’s Canada and U.S. divisions both forecast “a pleasant surprise” in lumber pricing during 2019, Wood Markets reports. Both divisions suggest the second-highest average annual levels of lumber pricing could be seen in the coming year, despite the low levels prices reached in December 2018.
In its Monthly International Report, Wood Markets suggests delayed shipments, partially the result of weather delays from British Columbia, contributed to inelastic supply in the lumber market, allowing prices to rise to record levels by mid-2018. The opposite trend occurred in the second half of 2018, when shipments “swamped the market,” causing prices to plunge by nearly 50%. Despite this development, Wood Markets believes the supply and demand fundamentals of the lumber market look reasonable for 2019.
Lumber Supply and Demand
Wood Markets states the U.S. will increase lumber consumption by about 7% in 2019, helping global softwood demand to increase 2.8% year over year to reach 350 million cubic meters in 2019. Wood Markets projects behind strong gains in repair and remodeling, lumber consumption in the U.S. should approach 52 billion board feet in 2019.
Softwood lumber production in 2019 is expected to mirror the pace of consumption, with Wood Markets projecting production worldwide will increase 2.4% to 342 million cubic meters (145 billion board feet net). Wood Markets anticipates U.S. softwood lumber production will increase 4.5% in 2019. However, high prices in the U.S. limited exports from American companies in the first three quarters of 2018, and Wood Markets reported a fifth consecutive year of declining net trade in North America.
U.S. Lumber Prices
Wood Markets project demand on North American mills to grow steadily in 2019, fueled by higher end-use market activity. As such, the group anticipates the North American demand/capacity ratio will increase two percentage points to 91% in the next two years, a favorable development for lumber prices.
Wood Markets anticipates an aggressive supply response by the lumber industry that should help prices remain strong by historical standards in 2019. While prices will sharply decline from the record highs reached in 2018, average prices in the coming year could be in line with the strong numbers posted in 2017.
Despite higher projected prices, Wood Markets projects continued volatility in the market through 2020 as a result of trade restriction on Canadian lumber shipped to the U.S., the reluctance of dealers and mills to oversupply the market, logging and transportation infrastructure attrition and transportation disruptions, capacity that exceeds consumption, and offshore trade.