Here's what an analyst says consumers should know about Canadian lumber prices

(File photo)

After a sharp increase in 2021, the price of lumber has dropped immensely in 2022, which is giving one western Canadian trader optimism that a more stable market will return.

The pandemic, severe flooding in British Columbia and inflation can all be blamed for creating volatility in the usually steady market over the past two years.

Prices peaked in May of 2021 at nearly $1,700 per 1,000 board feet (mbf) and have since dropped about 62 per cent.

Scott Wetaski, a sales trader with Canadian Engineered Wood Products based around western Canada, said what’s taken place with the lumber market over the last two years is unprecedented.

“I don’t think anyone could honestly say they expected to see what we saw with these fluctuations,” he said.

“Even before the pandemic, we saw a bit of what some might call a ‘supercycle’ when we saw some of the forest fire issues and some real aggressive pricing running out, but it was nothing compared to how this ran up and then crashed down.”

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Wetaski said that after last year it looked like some market stability was going to set in, only to have another violent wave in the market move through.

PRICE FLUCTUATION

The fluctuation in the market has been unpredictable for traders, but also frustrating for retailers and consumers alike.

Wetaski said it started with the COVID-19 pandemic, which drove prices up.

“Then there was this complete supply shock and demand that initiated as everyone started to focus their spending on other areas,” he said.

Wetaski said one of those areas of focus was home renovation projects, which quickly drove the market up.

“Then we saw things crash down as things started to look like they were going to open back up,” Wetaski said.

He said what spurred the latest run-through was the major flooding in B.C. in 2021, which was when supply shock and transportation became a huge influence on prices.

The supply shock caused huge competition for transportation, which was also dealing with challenges thanks to closed highways and railways from the floods.

Wetaski said some industries that normally didn’t rely on trucking for transportation started to, which made things much more competitive.

“Even during months when traditionally we don’t think [demand] would be that strong,” he said. “For January and February, really slow months, it was a challenge to try and ship material and that’s also when we saw a lot of customers try and get ahead.”

Wetaski said there was not quite what he would call a panic in the market, but because of the uncertainty around shipping, a lot of purchasing was happening so that demand, which was still fairly strong across North America, could be met.

He said the belief was once transportation began to loosen, the market would fall again.

“Really true to form essentially that is what we did see. We saw transportation start to loosen up, although it certainly isn’t better,” Wetaski said.

INFLATION

Wetaski said demand from many customers has slowed significantly, with inflation and rising interest rates top of mind for Canadians.

However to the surprise of some, Wetaski said inflationary pressures are not having too much of an impact on lumber products at the current time.

He said there certainly are higher costs for mills thanks to rising energy prices, but added the overall market is over supplied.

“There’s too much supply. Demand was kind of muted and it’s come down to these levels because of that,” Wetaski said.

However, he added he believes if current trends continue, inflationary pressures will begin to have an effect on lumber pricing once there is more stability.

CHALLENGES

The volatility of the lumber market has also been an immense challenge for traders.

“Traditionally, the lumber market has moved in a very narrow band up and down. When you get these violent swings like we’ve seen, it can quickly create winners and losers,” Wetaski said.

Wetaski said while the belief is the lumber market may be trending back to one with more stability, it’s very tough to predict.

“Every market acts differently than the last,” he said. “Truthfully it’s a situation where no one wants to see prices come down that fast because you just can’t get out in front of it quick enough.”

Wetaski said so far what hasn’t been seen with this latest drop is a quick correction back up.

“Hopefully that’s signaling we’ve reached a level now where we are going to see a more narrow trading bank and kind of get back to a market where there’s some comfort in taking a position that covers your needs while also being able to quote businesses effectively,” he said.

Wetaski pointed to scenarios like the war in Ukraine as factors that could again trigger more significant market shifts.

“It could still move one way or another and right now no one truly has a strong sense of that."