Surge in Lumber Prices to Have Long-Term Effect on US Lumber Market

One of the more surprising outcomes of the COVID-19 pandemic has been its effect on the US lumber market. Most in the industry expected a contraction in demand; however, lumber demand surged as homebound consumers undertook home improvement projects. Furthermore, new home construction – which was declared essential in most US states – rose as builders sought to capitalize on demand for single-family housing, completing units as quickly as raw materials became available. Even as 2020 turned into 2021, demand for lumber – and its price – remained at high levels, with sawmills simply unable to keep up with demand.

With 2021 expected to be another good year for the US lumber industry, construction professionals and consumers alike want to know what the future holds for the US lumber market.

Demand to Decelerate Going Forward, But Growth Opportunities Remain

Going forward, demand for lumber will rise, albeit not at the accelerated pace seen in 2020 and 2021. New housing activity – especially that of single-family homes, which is one of the largest end uses for lumber – will retreat from its elevated levels, meaning, in turn, that less lumber will be needed to start and complete the building of new homes. However, interest in home improvement projects is expected to remain strong as homeowners make permanent adjustments to their residences – expanding kitchens, adding bathrooms, converting unused rooms into home offices and home gyms, and installing decks and other outdoor amenities.

Lack of Production Capacity to Spur Firms to Expand Sawmills

Lumber prices often fluctuate throughout the year; however, in 2020 and 2021, lumber prices rose and rose without retreating. This steady growth in pricing was driven by the combination of surging demand and a lack of available lumber for purchase. Many sawmills were shut down in the aftermath of the Great Recession as firms reduced costs; few of these mills were re-opened when business conditions improved. Thus, when demand rose sharply in the first half of 2020, firms – even as demand rose – had little ability to produce additional lumber. Some firms have announced plans to expand lumber production capacity in the US, and it is expected that others will do so to capitalize on this opportunity for additional sales.

High Lumber Prices to Promote Use of Alternative Materials

High softwood lumber prices in 2020 and 2021 spurred many construction professionals to look for alternatives that were less expensive. Going forward – even as lumber prices return to more historically normal levels – many consumers will continue to use these products due to their favorable performance properties. These alternative building materials include:

• Engineered wood products (such as plywood and OSB) that are more durable and have more structural strength
• Prefabricated trusses in place of site-built lumber structural supports
• Wood-plastic composite and plastic lumber used in decking and fencing
• Steel piers and precast concrete forms in place of lumber structural and interior wall supports

For more information about the size and growth of the US lumber market, see our new study Lumber.

About the Author:

Matt Zielenski is a Senior Analyst at The Freedonia Group, where he covers trends in the use of building materials and related construction products in the US market.