By TTF Head Of Technical and Trade, Nick Boulton – (Blog: 16 July 2021)
A drop in US lumber futures is leading to some speculation on whether this is a harbinger of a similar trend in the UK – we explain why this is misguided.
The near wipe-out of Lumber prices increases in the US futures index has been a cause for pause for many of our members, as well as the wider construction industry. Lumber had seen a record boom during the pandemic in the US amidst speculation on the commodities market.
However, before you turn to your Economics 101 textbooks and speculate on how this may link to increased supply or lowering demand in the US or how this will affect the UK’s currently constrained market, you will need to add many asterisks.
Firstly, while the headline spot price may have fallen significantly, these indexes are subject to great volatility. Reading about the West Coast heatwave and the resulting forest fires, it would not be surprising if this index starts to head off in the other direction in the not-too-distant future. Such is the way when trading in commodity products.
Second and more critical is that the EU and UK market specifically is a very different place from the US. While in America it appears extra softwood production capacity has been brought online tempted by the increased price level, here in Europe we are already at maximum in terms of short-term sawlog supply and production capacity.
Already there have been record imports of structural softwood to the UK for all of the last six months, and at TTF we cannot see anywhere that further volumes could be sourced to add significantly to the supply side of the equation.
Going back to your textbook you will know that if demand for structural softwood remains strong but supply is constrained then the pressure remains on prices to keep rising.
A much better indicator of what is about to happen in the UK than any US price index will be how material supply issues affect construction in the coming months. These constraints will likely mean demand will ease, which will in turn allow structural wood stocks to start rebuilding. The easing of lockdown restrictions and regrowth of international holiday travel will also reign back the significant spending we have seen on Renovation Maintenance Improvement
The latest TTF statistics to be published next week include a graph which shows that timber prices are cyclic, and clearly showing we can expect a price correction at some point in the near future. What history cannot tell us is when and how quickly such a price correction is likely to take place.
However, given the versatility of structural wood products and the positive outcomes they can have on the MMC and zero-carbon agendas here in the UK, at the TTF we would think it is unlikely they will fall to fast or too far in short to medium term.
Source: Timber Trade Federation (TTF)