The images are by Josef Mohyla.
The price of lumber has doubled from summer lows after a confluence of factors put upward pressure on the red-hot commodity.
For the week, lumber futures gained 21% and hit a six-month high of $930 per thousand board feet. They're 45% below their record high, which was reached in May.
There are four factors that contributed to the recent spike.
1. There are floods in Canada.
The flooding in British Columbia has hampered the operations of West Fraser Timber, one of Canada's largest lumber producers, according to Ross Price, director of finance at commodity trading platform Mickey Group.
The natural disaster caused transportation disruptions to its rail and truck routes, as well as limiting access to ports for overseas shipments.
"This has caused one of the world's biggest producers of lumber to pause shipments, because of the closed roads," Price told Insider. It doesn't make sense for a supplier to produce more than they can actually deliver.
2. There is a lot of Hoarding.
A partner at the international law firm of Foley & Lardner said that construction companies are trying to avoid shortages by storing materials.
She told Insider that the same type of shortages were seen early on in the Pandemic, and that the toilet paper that was in the US last year was not a shortage.
The price increases would not be as dramatic if the lumber supply chain was functioning properly.
3. US tariffs.
The US has accused Canadian suppliers of dumping lumber in a trade dispute. The Commerce Department confirmed last month that it will impose a nearly 18% tariffs on imports of Canadian lumber in 2022.
The Biden administration's plan caused some lumber yards to stock up and increase their orders before the tariffs kicked in.
4. Hot housing market.
Since the start of the Pandemic, the focus has been on home building and improvement.
While the Federal Reserve has started to curb bond buys, its ongoing emergency policies continue to keep mortgage rates low, stoking further demand in the housing sector. Americans are still free to look for new homes in new markets with the work-from- home trend continuing.
There is a chance that another pullback is on the way.
As mills come back online and consumer behavior returns to normal, traders can expect lumber prices to retreat.
David Russell, VP of market intelligence at TradeStation Group, doesn't expect prices to fall all the way back to pre-pandemic levels. He told Insider that the likelihood of a return to May's peak levels is probably overreacting.
He thinks lumber prices will be around $500 to $600 per thousand board feet, 45% lower than the current levels.
Russel referred to the spring price rally as the aftershock of the huge earthquake. "After this, we will see the volatility decrease and things will start to calm down."
Business Insider has an original article.
