Because of the short-run dynamics of demand and supply, lumber and plywood prices are so high right now. During the pandemic's summer, demand for wood increased dramatically. Many homeowners were stranded at home and unable to take a holiday. At the same time, the majority of tree felling activities have been put on hold during the crisis.
The shortage is most severe for high-quality wood used for furniture. There are still plenty of cheaper options for home improvements, but people need to repair or replace old furniture during this period of confinement. Upward pressure has also come from China, which has stopped importing American timber due to health concerns.
The current price bubble is expected to burst when manufacturing returns to normal and more trees are cut. The long-term outlook depends on how successful forest managers are in replanting areas where there's a shortage of mature trees.
Because homebuilding may go up and down far quicker than sawmill capacity, wood product prices often vary more than other items. But as schools reopen their doors and people return to work, that demand will drop-off again.
The price of wood has been on the rise because of several factors. First, there is simply more demand for both residential and commercial building products. With so many new homes under construction and large corporations looking to expand their offices, there is certainly enough demand to drive the price up.
The second factor is the limited supply. The number of trees available to be harvested for timber is not increasing fast enough to meet this rising demand. And even if it was, our forests are still recovering from decades of mismanagement, so they would only produce so much wood before they ran out.
At this point, we must turn to the third factor behind the rising cost of wood: competition between manufacturers who try to lower production costs by using cheaper materials or producing larger quantities. This is true for all commodities, but it is especially acute with wood, which is both plentiful and affordable when you don't need much quantity.
As soon as you start needing lots of wood, either for homebuilding or business purposes, you run into problems.
Lumber and plywood costs in the United States have skyrocketed. Prices for building materials will fall in 2022, reverting to pre-pandemic levels by 2023. During times of overproduction, you can expect to pay more for wood products.
The price of concrete also tends to be affected by changes in supply and demand. Concrete is used in many buildings, including homes. When there are more building projects planned or completed, this usually leads to more consumption and thus higher prices. Lower-than-expected building activity could cause prices to drop.
The price of steel has been on an upward trend since 2012. This increase is expected to continue through 2025. The rising cost of steel has been caused by increased production and demand from around the world. In order to meet this demand, some steel producers have turned to using alternative materials such as aluminum and plastic in place of steel when possible.
The price of copper has risen steadily since 2003, when it was at its lowest level in decades. This rise is expected to continue until 2030, by which time experts believe it will be nearly $7000 per ton. Copper is needed for hundreds of products from wiring to plumbing to computers. As the need for copper increases, so does its price.
Fundamental supply and demand economics might explain why lumber prices surged to stratospheric levels in 2020. During the summer months of 2020, demand for lumber soared considerably as interest rates on house mortgages and new construction funding decreased. At the same time, more than half of all U.S. homes are now built with wood, so there's plenty of supply waiting for demand to return to normal.
The average price for a ton of softwood lumber sold in the United States was $150 per ton in February 2011, according to the Department of Agriculture. That's more than double the average price in 2004. While most experts expect prices to decline when not enough houses are being built to meet current demand, the rising cost of building materials may make housing more affordable for consumers in the long run.
The price of a ton of hardwood lumber was about $50 less in 2011 than it was in 2004. Although the number of homes built with hardwood increased significantly during that time, the total volume of hardwood lumber produced in the United States remained largely constant. Therefore, the increase in price was entirely due to demand for higher-quality lumber. In fact, nearly one in five homes built in 2004 had solid hardwood flooring, compared to nearly one in three homes built in 2008. Higher quality flooring usually costs more than standard flooring.
Copyright © 2020 - 2023 BindleyHardware & Co Inc.
