The past two years have been a wild ride for the global economy. Prices for many products and commodities have been fluctuating greatly since the onset of the pandemic, and lumber has been one of the starkest examples.
In our last blog post on the topic, we discussed how multiple factors, many of them tied to COVID-19, led to a shortage in lumber that drove prices through the roof. At that point, lumber hit a record high price of over $1,700 per thousand board feet.
Throughout the remainder of the year, it remained volatile but decreased significantly, reaching lows of just over $400 per thousand board feet in late summer and early fall. Since then, lumber began another slow climb, reaching a peak of nearly $1,500 in early March. At the time of this writing, the price has dropped to under $1,000.
The forces that plagued last year’s lumber market continue to do so, but the demand side may finally slow down. Demand for building materials remained high in the beginning of 2022 despite near-record prices, partially in anticipation of further price increases.
However, mortgage rates spiked back up to pre-pandemic levels, and the cost of building a home has increased $18,000 due to lumber alone according to the National Association of Home Builders. These factors are likely to put enough pressure on the market to decrease demand and ease prices moving forward.
The supply side is still facing difficulties. Supply chain, labor and transportation issues originally induced by the pandemic have only gotten more pressing. The cost of moving lumber from place to place has skyrocketed alongside oil and freight prices and an ongoing trucker shortage.
In addition to these struggles, Russia’s invasion of Ukraine and natural disasters in Canada, Russia and Canada being two of the largest lumber exporters in the world, have choked supply further. The United States also doubled duties on lumber from Canada late last year, but those tariffs may be reduced this year to help lower costs.
Because these factors are unpredictable, it’s hard to say if lumber will return to pre-pandemic prices or if this lumber market will become the new normal. Between annual inflation, which is at its highest level in 40 years, astronomical fuel costs and prices rising on virtually all commodities, it’s not likely to happen any time soon.
The same issues that forced lumber prices up have affected the pallet market as well. Demand for pallets remains high, despite a slight dip in the demand for lumber, leading to a 66 percent increase in price compared to this time last year and 3 percent increase compared to February.
Lumber, nails and fuel, alongside increasing labor cost and general inflation, will likely keep pallet prices high for the foreseeable future. In light of this, developing a strong relationship with pallet suppliers and keeping extra stock on hand when possible can help shield pallet buyers from the current turbulence of the pallet market and prepare them for times where shortages may occur.
We will continue to monitor the lumber market diligently as prices fluctuate.