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design thinkers

A perfect storm: Why the price of wood is skyrocketing

In mid-March, 2020, Covid-19 struck with amazing swiftness and ferocity, shutting down many sections of our State and National economies.

Many of the harvesters, mills and wood treatment facilities, although deemed “essential”, chose to close due to their perceived anticipation of a significant drop in demand. Instead of the anticipated drop, just the opposite happened, and the demand grew.

Many people were furloughed and receiving extra State and Federal Unemployment funds. With time on their hands and money in their pockets, these furloughed workers now had time to work on those home improvement projects that had moved to the top of the “to do” list. This produced a run on stores like Home Depot and Lowes all over the country. These stores experienced decimated wood product inventories and since there was no one making more, the cost of the remaining inventories increased significantly. What resulted was a “perfect storm”.  No new goods were being made and put into the supply chain, while all existing inventories were being depleted rapidly. This led us to where we are now. Very little inventory priced exorbitantly high. Classic supply and demand.

During this same period, there were several other events occurring which added additional strain to the lumber industry:

  • U.S. borders between Mexico and Canada were closed, limiting many construction materials.
  • Border closures between the U.S., South America and Europe caused a disruption in the delivery of “exotic” materials such as specialty molding, certain grades of plywood and many high end woods, like teak.
  • When the shutdown occurred, the railroad industry, on whom the construction industry relies heavily, had an very large amount of railroad cars stranded in eastern locations making the shipment of goods from the south and west very difficult.
  • Since the railroad option was limited, the construction industry turned to trucking for help. The mills had to compete for trucking space with fruit and vegetable growers’ goods from the south and west.  It turns out that a lot of truckers chose to transport produce rather than construction materials because the produce shippers were paying them more.
  • When construction material manufacturing started back into production, companies were forced to maintain social distancing on their assembly lines.  This resulted in reduced factory output.
  • Lastly, during the pandemic, many people fled the cities to the suburbs buying up most of the existing homes for sale.  Any leftover demand went to the new home market, which now had higher priced houses due, in large part, to the circumstances listed above.  To add insult to injury, the mortgage money to pay for these new houses was drying up because banks were building internal reserves to protect themselves against the anticipated increase in foreclosures, due to the extremely high amount of people out of work.

As far as where we go from here, our lumber industry representative, Kevin Goff, from National Building Products in East Hartford, CT says that all eyes are on the November election. His company is forecasting a continuation of unprecedented high prices and material shortages, through at least November.  Based on the outcome of the election, and the availability and effectiveness of a Covid-19 vaccine, that may provide some normalcy to the market.

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