Rising Wood Prices: What You Need to Know

It’s undeniable that the pandemic we're facing has been the source of many upheavals, both socially and economically.

As we all know, several sectors of the economy have been greatly affected by this situation and unfortunately, the construction sector hasn’t been spared. Now, the recent fluctuations in the price of lumber remind us that this situation’s clearly not yet resolved.

Rising lumber prices: the factors involved

Source: Canva

As the price of lumber now averages an approximate rate of $1260 per thousand-foot board measure, its high rate remains a major issue for those involved in the construction industry.

This price is even higher than the 2021 average, a year in which new highs were reached. This increase in lumber prices greatly complicates the situation for construction contractors, who’re already suffering the negative impact regarding a lack of qualified labour. So, what exactly are the factors involved to explain this new increase?

1- The slowdown in production in British Columbia

Regarding the factors involved in explaining the current situation, let us first note the slowdown in production in British Columbia due to the major floods and fires that this province has dealt with in recent months.

Let's not forget the damage caused by the pine beetle, as this insect has managed the sad feat of devastating forests covering more than 15% of the province’s area, in addition to destroying approximately 50% of the lodgepole pines that they found on its territory.

2- The increase in US countervailing duties

Secondly, it would be difficult to deny the considerable impact of the increase in countervailing duties imposed by the American economy, motivated by what our neighbour to the South calls unfair competition on the part of Canada in regards to the American forestry industry. It should be noted that this increase is considerable and that it even goes so far as to double the former rate (from 9 to 18%).

As the president of the forest committee of the Union des municipalités du Québec points out, the changes to the forest regime were put in place in an effort to resolve the conflict between the two countries. Unfortunately, it seems that the efforts invested in this process did not yield the expected results and now the compensatory costs are skyrocketing, as is the price of lumber.

Some large Canadian companies such as Resolute Forest Products will pay a much higher rate, around 30%. Although the tensions surrounding the timber trade between Canada and the United States have been public news since 2017, its impact is all the more considerable since the Canadian economy is in a worse position than last year.

3- The increase in cases caused by the arrival of Omicron

Due to the greater transmissibility of the Omicron variant and the rapid increase in the number of cases, it should also be noted that a slowdown in production is certainly a fear. Although the current situation still doesn’t indicate a problem in this regard, the rapid spread of Omicron casts doubt on the situation.

4- Residential construction on the rise

Let's not forget that residential construction is still very popular, here as well as in the United States. Further, The Madison's Lumber Report states a 12% increase in residential construction in November 2021 compared to the same period the previous year. Whether it’s to build new homes or to undertake renovations, wood is currently in high demand.

Therefore, this unabated popularity increases the demand for lumber, which is accentuated by the need to rebuild the homes destroyed during the natural disasters in British Columbia mentioned above.

As the beginning of the year is often the time when the various intermediaries stock up on wood in preparation for the projects and works that will take place in spring, it’s undeniable that the current demand greatly exceeds the supply.

Good news for Quebec?

Source: Canva

Michel Vincent, an economist at the Quebec Forest Industry Council, maintains that Quebec produces much more wood than it requires (three times more). Supply would therefore not be a concern for the Quebec market, although the situation is not immediately as reassuring for the rest of Canada.

Another interesting fact to note on this subject, the increasingly active presence of Europeans on the American market could very well increase the quantity of wood available. Thus, this new player could eventually help to rebalance the price of lumber, a material whose popularity doesn’t seem about to subside.