This article exists as part of the online archive for HuffPost Canada, which closed in 2021.

Wood Someone Check These Prices?

Wood Someone Check These Prices?

Commodity prices are all down, right? Wrong!

Commodity prices have scored high on the economic shock-talk scale in the past decade. Although prices are generally still riding high, the recent trend has been downward. Energy, base metal and even food prices are down considerably from recent peak levels. We expect the trend to continue with the U.S. recovery spreading overseas, as liquidity shifts from parked investments to plant and equipment -- but are all commodities following the same pattern of decline?

There is one noticeable anomaly. Lumber prices are soaring, thanks to the surge in new home building in the U.S. -- up a stunning 40 per cent over the past year. In contrast to the declines in other sectors, and in spite of weak pulp and paper prices, the forestry index is up 22 per cent over year-ago levels. Composite USD prices have been rising steadily since last fall, and are now up 43 per cent since February 2012 to $415 per thousand board-feet, led by gains in the price of Western SPF 2X4s.

Panel prices are similarly striking. Plywood prices are up between 20 and 30 per cent, depending on the source. But the real drama has been reserved for oriented strand board (OSB). Long in the doldrums, OSB prices have rocketed ahead, more than doubling in the past 12 months to USD 415 per thousand square feet, and gaining momentum in the past month. Is it a bubble, or will it last?

Consider demand. Although globally, construction of housing has generally softened, the U.S. market is showing no signs of a relapse. Even with recent growth, U.S. housing starts are well below the rate of household formation, and unlike the past six years, the balance between supply and demand is roughly even. Starts could rise another 40-50 per cent without upsetting this balance. House prices are responding, rising across the lower-48 and prodding renters to jump in before they get left behind.

How about supply? The protracted U.S. housing crisis lowered Canadian sawmill capacity significantly -- Canadian lumber shipments to the US are just 40 per cent of 2004 levels. A large share of that is gone for good. Moreover, we're shipping lots more to China. Higher product prices will create lots of incentive to build new capacity or expand existing facilities. Yet the International Wood Markets Group reports limited capacity to expand wood production significantly in the key North American production zones. High prices may indeed attract higher imports from Europe and elsewhere.

Demand and supply conditions suggest no imminent price relief, and some believe that a price super-cycle is in the works. Canadian wood shipments have already begun to rise, with annual exports up 21 per cent in 2012 and growing. But in this cycle, the U.S. will have to compete with fast-growing East Asian markets, which have been a welcome refuge for beleaguered Canadian producers in the past decade. Average annual growth of wood exports is 39 per cent for China, 9 per cent for South Korea, and 6.3 per cent for the Philippines. Turkey is also a hot current destination for wood products.

This news is welcome relief for those in Canada's wood products industry that are still standing. As U.S. growth spills over to the rest of the world, demand for wood products will only increase. As such, it is hard to believe that the industry is not on the verge of a new period of expansion.

The bottom line? Sustained growth in the U.S. housing market is breathing life into one of the industries hardest hit by the global economic and financial crisis. Perhaps this is where the new wave of international business investment will begin. One thing's sure, there's ample money to fund it.

This article exists as part of the online archive for HuffPost Canada. Certain site features have been disabled. If you have questions or concerns, please check our FAQ or contact