(Bloomberg) — Lumber prices are slipping to levels seen four months ago as soaring inflation curbs the appeal of do-it-yourself renovators to take on costly new home-improvement projects.
“The DIY sector is eroding because inflation is up,” Russ Taylor, a market consultant at Vancouver-based Russ Taylor Global, said in an interview. “Buyers are just walking away and saying ‘I’m not going to pay that kind of price’.”
Lumber futures fell as much as 8.4% to $870 per 1,000 board feet in Chicago on Monday, extending a slump to about 30% since the start of March. The contract, which briefly slipped below $850 last week, is hovering around levels seen back in early December.
The DIY sector is the largest lumber market segment, accounting for about 40% of consumption, according to Taylor. Big box retailers such as Home Depot Inc. and Lowe’s Cos. represent half of the segment, with the rest coming from smaller retailers and contractors yards. Taylor sees lumber prices falling below $600 before a slight recovery in May when supply and demand become more balanced.
Home construction and DIY projects often provide a springtime boost for North American wood prices, such as last May when lumber hit record highs during a homebuilding boom before collapsing as high prices stifled demand and sawmills ramped up production. Lumber has been volatile throughout the pandemic, with a recent peak in March fueled by lingering supply and shipment woes from last year’s floods in Western Canada, a key producing region.
Inventory is also piling up because of transportation snarls that have left many of North America’s biggest producers with stockpiles at sawmills. Due to a lack of rail cars and damaged roads, “producers are sitting on a lot of inventory because they can’t ship the stuff,” said Mark Wilde, an analyst with BMO Capital Markets.
The backlog is especially acute in Western Canada, with some lumber companies responding by cutting back on operations. Canfor Corp. cut operating schedules at its sawmills in the province of British Columbia starting April 4 to address what the company called “unsustainable inventory levels.” West Fraser Timber Co., the world’s largest lumber producer, curtailed output in early February as its “ability to ship products in a timely manner remains challenged.”
That’s causing issues along the supply chain, including wholesale lumber buyers that are reluctant to order more materials until they receive their current shipments.
“The price has come down because people haven’t got their lumber,” Paul Quinn, an analyst with RBC Capital Markets, said in an interview, referring to wholesale buyers. “They are hesitant to buy more.”
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