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Timber price: price collapses, crash after record rally of timber

2021-07-22T05:20:54.869Z

Rising commodity prices kept investors and house builders in suspense in the spring. The price of wood alone has tripled within a few months. The fact that it is now collapsing again has to do with effective markets and the holidays in the USA.



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Spruce logs in Saxony: After the recent drop in prices, no more wood is shipped to the USA

Photo: Klaus-Dietmar Gabbert / dpa

The spring of 2021 brought many home builders sleepless nights in Germany as well: Lumber was hardly available or so expensive that numerous builders had to recalculate. Between November 2020 and May 2021, the average price more than tripled from around US $ 500 to US $ 1,600 (per 1000 board feet). The reason for the price surge was the real estate boom in the USA, where houses are mostly built using timber frame construction. The rapidly increasing demand in the USA meant that European sawmills were also working on the fence - in order to then ship the wood across the Atlantic.

Countless do-it-yourselfers who wanted to renovate or expand their homes during the corona pandemic stood in front of empty shelves in hardware stores or watched the weekly rise in prices with concern.

Timber farmers and economists warned of a price bubble early on and emphasized that it was not a permanent business model to move wood from Europe to the USA.

And they should be right: after the six-month boom, the price of wood has collapsed again - since the record high in mid-May, wood has become around 70 percent cheaper within 8 weeks, the average price per 1000 board feet is around 500 US dollars again at the level of last November.

The price slide is the result of an effectively functioning market

The rapid and drastic fall in prices surprised some speculators, as the recent forest fires in Canada and the United States threatened to fall again. But the sharp drop in prices is primarily a result of an effectively functioning market: While sawmills in the USA, Canada and Europe have been running extra shifts in the past few months, thereby greatly expanding their range, many home builders have postponed their construction projects for the time being in view of the horrendous prices - and are went on summer vacation. Since May, the reluctance of customers has led to weaker demand and a strong increase in supply at the same time - a combination that has now pushed the price of wood down again.

After the price record in May, the price of wood had already slumped by around 40 percent in June, the steepest price slump in 43 years.

July could be an equally weak month - provided that holiday returnees do not take immediate action in view of the sharp drop in prices.

The currently sharply falling prices for lumber are encouraging some builders in the USA to wait longer before purchasing.

According to calculations by CNBC, the construction costs for a single-family home in the USA have already become cheaper by more than 20,000 US dollars since mid-May.

According to calculations by the US Association of Home Builders, construction costs had previously risen by around 30,000 US dollars.

The price should rise again, but not return to the record level

The fall in prices comes very early on for many wood producers and sawmills in the United States, which have only just ramped up their capacities and deliveries of sawn timber significantly.

Some producers even struggle to recoup their production costs at a price of less than $ 500 per 1000 board feet, according to the Madison Lumber industry service.

If the supply then declines, if demand increases again, the price could stabilize again or rise slightly.

However, a return to the May record is extremely unlikely - to reassure builders in Europe and the USA.

la

Source: spiegel

All news articles on 2021-07-22

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