09/17/2020

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Lumber Prices Hit Record Highs



Restaurants, Construction Companies, and DIYers Drive Demand


Lumber and plywood prices are hitting record highs as various sectors of the economy respond to the pandemic.

Restaurants and bars are buying wood to build makeshift outdoor seating options. In many parts of the country, including in New York City, outdoor dining service is permitted, but indoor operations are not. Additionally, home builders are purchasing large amounts of wood as they respond to rising demand for new homes. Low mortgage rates and a desire to be able to social distance in a single family home has led to an increase in construction. Additionally, people stuck at home this summer are working on home improvement projects and flocking to stores like The Home Depot (HD), Lowe’s (LOW), and Menards to stock up on wood.

By the Numbers


Lumber futures have risen over 85% since April 1. July futures hit $499 per thousand board feet last week, and September futures reached $481.90.

Lumber futures rarely trade higher than $450. Before the pandemic, the record for lumber futures was $463.00—which was set in 2006 during a home-construction boom.

Stocks to Watch


Mill companies like West Fraser Timber Co. (WFTBF) and Weyerhaeuser (WY) have seen their shares rise due to booming demand for lumber. In March, as shutdowns hit the US, wood prices tumbled. Home sales slowed, as did construction. In response, many mills scaled back production. Now, these trends have been reversed, and mills are doing their best to keep up as construction companies, restaurants, and individuals flock to buy lumber.

Companies that make chemicals to treat wood, like Koppers Holdings Inc. (KOP) have also seen demand for their services skyrocket. Koppers reported that orders from some of its large customers have gone up by 40% this summer. Normally, in a successful year, orders might go up by 6% or 7%.

Mills, chemical companies, and home improvement stores are all trying to predict if this rise in demand for lumber will be long-lasting, or if it is more of a short-term spike. Changes in COVID-19 cases, economic conditions, and the transition from summer to fall will likely all have an impact on lumber demand.


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