Lumber Price Plunge Puzzles Pundits

Don’t watch the news on lumber prices too closely: you might get whiplash and mood swings.

Houston station KHOU had it one way on May 29: “Housing boom drives up lumber prices,” by Jeremy Desel. “”The supply chain can’t keep up with what is needed. The price goes up and that’s just the way it is,” builder Zac Murtha told the station. “The price of lumber is usually seasonal, but home builders didn’t see the normal drop this winter. Now, prices are poised to go even higher,” KHOU reported. “It’s not just lumber—concrete and drywall are way up too.”

But a week later, Yahoo Finance had prices going the other way — and they were calling that bad news (“Timber! Falling Lumber Prices Shatter Housing Optimism,” by Jeff Macke. “The price of framing lumber on CME is barely over $300 per 1,000 board feet, down more than 20% since the beginning of April,” reported Yahoo. “The last time prices were this low was October of last year. Meanwhile, the price of copper is currently fighting back from its own 20% correction from February through April.”

How is copper like lumber? They’re both building materials. Said Yahoo: “If the economy is supposed to be in recovery and housing is picking up, someone forgot to tell the commodity markets.” That left investment advisors wondering whether this meant things were looking better, or worse. “If housing is really improving,” Yahoo reasoned, “lumber should be able to hold a bid near $300. If that doesn’t happen, it’s going to be time to consider the idea that the entire recovery could be headed up in smoke.”

Bloomberg had an explanation for the price drop: Mills are sawing more lumber (“Lumber Futures Fall Most in 17 Months as Output Rebounds,” by Joe Richter). “Lumber soared 44 percent last year as a jump in U.S. housing starts strained supplies following a cut in capacity during the property slump,” reported Bloomberg. “Mills coming back online are easing constraints.”

If you like low lumber prices, don’t get too comfortable: Some analysts think the short-term drop can’t last, Canada’s Financial Post reports: (“TD forecasts lumber prices will rise 30% by end of 2014,” by John Schmuel). Bad spring weather in the U.S. delayed many building projects, and demand from China slumped at the same time — just as many mills were boosting output, said analyst Dina Ignjatovic of TD Research. Reports the Financial Post: “Ms. Ignjatovic expects that as Chinese and U.S. demand bounce back from their seasonal lows, lumber prices will steadily climb to the end of next year, gaining 30% in the process and hitting new multi-year highs.”

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