CALGARY — Forest product market analysts expect prices for lumber and building panels in North America will remain strong for several years despite recent price declines after an unprecedented surge to record high levels over the summer.
Ongoing robust demand for building products from both new housing and home renovation will be driven by the tight inventory and advanced age of existing homes for sale in the United States, along with low interest rates and untapped home equity, analysts from Forest Economic Advisers said Tuesday on a conference call discussion organized by CIBC.
Meanwhile, they say there's limited ability to increase North American production of lumber and panels because of wood fibre shortages in British Columbia, the as-yet-undetermined impact of recent forest fires in the western United States and COVID-19-related labour shortages in the U.S. South.
"We did expect to see lumber prices drop ... (but) we're going to continue to see mills produce lumber even as prices come down and that's because mills are making a significant amount of money right now," said FEA principal Paul Jannke.
"We don't think prices are going to retest the lows that we saw in 2019; in fact, if we're looking out over the next couple of years, we're looking for prices to balance between US$400 and $500 (per thousand board feet) so that's a bit higher than we saw through the second half of 2018 and through most of 2019."
Western SPF (spruce, pine, fir) lumber prices declined by 6.1 per cent over the past week after a nearly unbroken string of increases since April, said CIBC analyst Hamir Patel, quoting industry watcher Random Lengths in a report.
He predicts average prices in the fourth quarter will decline to about US$500 per thousand board feet, down from about US$751 in the third quarter, but still well above the average of US$359 in 2019.
Homebuilders estimate higher prices for forest products have added about $10,000 to the cost of building a typical Canadian home so far this year.
Panel products such as oriented strand board (OSB), commonly used to sheath new homes, have had a similar increase in prices this year thanks to stalled inventory build from the pandemic lockdowns early in 2020 followed by an unexpectedly rapid increase in demand as home building and renovation work boomed, said FEA vice-president Greg Lewis.
"Going forward, in 2021 and again in 2022, we expect production will be able to get ahead of consumption early in the year and we're looking for a more typical inventory build in early 2021," he said, adding there are signs that previously closed OSB mills may be restarted.
"The fact that inventory is so low right now and will stay low basically through the end of the year, is a big reason why pricing has been where it's been."
Western Canada OSB prices were flat last week compared to the previous week at US$710 per thousand square feet, compared with an average of US166 per mcf in 2019.
Provincial stumpage fees for Crown timber harvested in B.C. and Alberta are expected to continue to add to wood costs for forest product producers this year, Jannke said.
Alberta's October stumpage fee was recently set at C$85.76 per cubic metre, up from $67.31 in September and $10.67 in October 2019.
This report by The Canadian Press was first published Oct. 6, 2020.
Dan Healing, The Canadian Press
