US lumber prices are near an eight-year high as demand for the staple commodity of the American housing sector has risen on the back of a pick-up in new home construction.

Lumber – or sawn timber – futures contracts for March delivery stood at $380 per 1,000 board ft on the Chicago Mercantile Exchange on Friday, after nearing $400 in late December – the highest since mid-2005.

Prices rose by almost 45 per cent in 2012 alone, as builders have constructed more homes in response to an uptick in demand from homebuyers eager to take advantage of record-low mortgage-interest rates. Softwoods such as spruce, pine and fir are used to make lumber for homebuilding materials such as boards and plywood.

Lumber prices have also been boosted by supply disruptions because of the shutdown of some North American manufacturing plants since the downturn. Renewed export demand from China and a mountain-pine-beetle epidemic which is taking its toll on lumber production in British Columbia, Canada are additional factors.

“We’re at the beginning of a long upward cycle in the housing market,” said Paul Jannke, principal at Forest Economic Advisors, a Massachusetts-based consulting firm. “Total consumption of lumber in the US will be up 10-15 per cent a year for the next three years at least. Demand is still well below historic levels.”

Forestry stocks are also on the rise. In the last six months alone, Weyerhaeuser, which grows and harvests timber to be manufactured into lumber, and Plum Creek, one of the largest timber landowners in the US, have seen their shares rise 35 per cent and 16 per cent respectively.

“With a couple of years still to go in the US housing recovery, now is a good time to be invested in lumber. These companies deferred harvests over the past few years as it was not an advantageous time to sell,” said Joshua Barber, analyst at Stifel Nicolaus. “The only concern is that this build up of inventories could temporarily cap prices.”

New construction of single family homes and multifamily apartment blocks – which accounts for up to 45 per cent of lumber demand – fell from a 2005 peak of 2.07m houses to a 2009 trough of 554,000. Lumber futures prices dropped 65 per cent over the same time period.

Industry predictions are for 929,000 new houses and apartments to be built in 2013 – a 20 per cent rise from the average analyst projection for 2012. Each new home requires about 14,000 board ft of lumber.

“The US adult population grows by 3m people every year and these people need to be housed,” Mr Jannke added. “The stock of vacant homes is disappearing, we’re seeing a rise in demand, home prices are rising and there is very little doubt that demand is going to keep increasing at a good rate.”

With new inventory levels at a 50-year low, a spike in demand has brought relief for the forestry industry after a difficult few years during which nearly 150 mills halted operation.

Source: Financial Times

Posted and edited by Riona, Hanbao News Department

Contact: rionach@cltimber.com