How long will the lumber price rally last?

By Tom Stundza -- Purchasing, 6/25/2008 9:57:00 AM

Purchasingdata.com’s Forest Products Price Index elevated to a nine-month high in June as construction-grade lumber and plywood products increased by 6.5% from May. Still, year-over-year prices remain 9.5% lower, according to the index, so economists are wondering how long the higher prices for these building materials will last.

Market analysts point to a modest seasonal rally and substantial North American mill curtailments that helped such increases as the Western hemlock fir 2x4 lumber price gain to an average $281 per thousand board feet in June. That’s the highest market price since last September. Also, OSB (oriented strand board) prices have also firmed up to $191 per thousand square feet in June, the highest price since July 2006.

U.S. housing starts have weakened further lately to the lowest level since early 1991. Privately-owned housing starts in the U.S. fell 3.3% in May, to a seasonally adjusted annual rate of 975,000, which is 36.3% below the same period last year. Yet, “stronger warmer-weather seasonal demand, low inventories at wholesale dealers and widespread mill curtailments have pushed lumber prices back over cash costs for the time being,” says economist Patricia Mohr at Scotiabank in Toronto.

In an interview with Purchasing.com, she says that “widespread production curtailments across North America have been a key factor” but adds that “this price is likely temporary” and will slide as the weather cools. She suggests that true improvement in market demand, which would boost prices back to mid-2007 levels, isn’t expected until late 2009 or early 2010.”