Home / Lights & Construction

Previous views on the global “timber crisis” have been raging, manifested in the fact that U.S. timber futures have quadrupled in the past year, directly leading to soaring downstream timber prices.

Timber futures prices on the Chicago Mercantile Exchange began to rise sharply around June last year, and are currently more than three times the price last spring. Although timber futures prices have fallen in the past week, the current US timber "spot" prices have just hit a record high. Today, North America is facing a historic timber shortage crisis.

So, is the timber boom a sign of out-of-control inflation? Or is it a problem of supply and demand in the industry?

Data show that the price of timber futures for July delivery hit a record high of US$1,733.50 per thousand board feet on May 10, and then continued to fall. By the end of this year, the price seems to remain above US$1,000 per thousand board feet.

Due to the shortage of raw materials, the global ports have been delayed for a week, and even the lack of containers has slowed down the production of goods and the delivery of finished products to the global market. With the slow reopening of the global economy, pent-up consumer demand has further exacerbated supply tensions, all of which have caused relative prices to skyrocket.

First, the price of wood is related to the number of newly built houses in the United States. The housing starts in the United States in April were 1.57 million, 69% of which were single-family houses. The monthly total was the largest increase since 2006, which directly led to the large share price of U.S. timber concept stocks. rise.

New home prices continue to rise rapidly, which is the result of demand exceeding supply in most markets in the United States. As of the end of April, the median price of new homes reached a record 372,400 US dollars, a year-on-year increase of a little more than 20%.

It is estimated that the typical new house price will be as high as 36,000 US dollars in the current building market, and the demand for the new house market is still surprisingly strong. However, the supply of new homes continued to decline. As of the end of April, the national supply of new homes reached 4.4 months, a month-on-month increase of 10%, but a year-on-year decrease of 33%, which is far below the 5- to 6-month supply balance, which is not good for buyers or sellers.

With the declining inventory of new homes in the market, and subject to supply chain issues, and the strange levy of Canadian cork on the US border in the Trump era, the price of new homes is bound to rise in the short term.

Looking back, the outbreak of the epidemic has caused more and more industries in the United States to face the shock of supply and demand in the production process. Since the beginning of this year, the prices of raw materials in the manufacturing industry and the retail industry have been rising, including food, gasoline, new cars and second-hand cars. It is the rise in the price of back-to-school uniforms, which is the most obvious indicator of "inflation". The Consumer Inflation Expectation Index released by the University of Michigan last week exceeded 3%, the highest level since August 2012, which has contributed to people's perception of inflation.

The current rise in relative prices puts the Fed in an extremely embarrassing position. The Fed’s attitude has changed from having never thought about reducing QE before, and recently clearly stated that it will come to the next meeting to discuss this issue, which means that people’s continued panic about inflation expectations, the Fed will take corresponding actions.

For economists, inflation is an indicator of the price of the entire large economy. When prices exceed purchasing power, inflation expectations rise and market sentiment falls. The consumer confidence index fell to 71.8 in April. As the local economy began to reopen, the consumer confidence index rose to 88.3 in May.

However, in economics textbooks, the boundary between micro and macro economics for inflation is clear. At the micro level, how quickly supply constraints can catch up with the current level of demand will largely determine the continuation of current price fluctuations. time.

As previously explained by Fortune, this historic timber shortage was driven by a storm triggered during the COVID-19 pandemic. When the new crown epidemic broke out in the spring of 2020, sawmills cut production and reduced inventories due to fears of the upcoming housing market crash. However, this crash did not happen, and the opposite happened. Worried, quarantined Americans rushed to Home Depot and Lowe's to buy materials for do-it-yourself projects, and interest rates triggered by the recession helped to stimulate the real estate boom. As a large number of millennials have begun to reach the peak of housing purchases, the housing inventory has dried up and buyers are asked to find new buildings, which further exacerbates this boom.

In addition, because home renovations and construction of houses require large amounts of wood, and sawmills cannot keep up with this demand, record prices are generated.

At present, the rising demand and limited supply in the market still exist, and this is why price adjustments may still take several months to be realized.