Forest product analysts expect prices for lumber and building panels in North America will remain strong for several years despite recent declines after an unprecedented surge to record high levels over the summer.
In a conference call discussion organized by CIBC, analysts from Forest Economic Advisers say they foresee ongoing robust demand for building products from both new housing and home renovation, driven by the age and low inventory of existing homes for sale in the United States, along with low interest rates and untapped home equity.
Meanwhile, they say there's limited ability to increase North American production of lumber and panels because of wood fibre shortages in British Columbia, the as-yet-undetermined impact of recent forest fires in the western United States and COVID-19-related labour shortages in the U.S. South.
CIBC analyst Hamir Patel, quoting industry watcher Random Lengths, notes that western SPF (spruce, pine, fir) lumber prices declined by 6.1 per cent over the past week after a nearly unbroken string of increases since April.
He predicts average prices in the fourth quarter will decline to about US$500 per thousand board feet, down from about US$751 in the third quarter, but still well above the average of US$359 in 2019.
FPE principal Paul Jannke says demand for building products will shrink due to seasonal factors over the next few months and that will put some downward pressure on prices, but they'll remain between US$400 and $500 per thousand board feet for the next few years.
"We did expect to see lumber prices drop ... (but) we're going to continue to see mills produce lumber even as prices come down and that's because mills are making a significant amount of money right now," he said.
Homebuilders estimate higher prices for forest products have added about $10,000 to the cost of building a typical Canadian home.
This report by The Canadian Press was first published Oct. 6, 2020.