Prices for Western lumber two-by-fours produced from spruce, pine and fir have fallen to around $250 (U.S.) for 1,000 board feet as of early May 2015STRINGER/Reuters
Just when the North American lumber market was starting to find some solid ground in the long-awaited recovery from the U.S. housing crisis and subsequent recession, prices are once again under pressure.
Supply of logs is outstripping demand and Mother Nature is partially to blame, alongside weaker demand for the commodity in both the U.S. and China.
Lumber and panel prices fell more in the first quarter of 2015 than they have since research firm Random Lengths began calculating the data in 1995, according a report from DA Davidson & Co. analyst Steven Chercover.
"The month of April didn't bring any relief as prices continued to drift lower," Chercover said.
Prices for Western lumber two-by-fours produced from spruce, pine and fir have fallen to around $250 (U.S.) for 1,000 board feet as of early May, from $340 at the end of 2014.
U.S. housing starts, which are a key driver of lumber economics, have been underwhelming and Chinese buying is down, Chercover says. The higher U.S. dollar is also inspiring Canadian producers to boost production to gain the currency benefit. Climate change is also playing a role in the depreciating price of lumber.
"The West Coast didn't have a winter, so log availability has been abundant, while the East Coast had 'mucho snow,' crimping construction," says Chercover. "Again, supply exceeds demand."
Adam Turchioe, a weather research analyst at Thomson Reuters, said the past two winters have been colder than normal, and lasting for a longer period of time, in Central and Eastern Canada and many of its neighbouring U.S. states. There has also been a deeper snowpack in many of these regions, which has hampered economy activity across a number of sectors.
"It can have a far-reaching impact in certain industries, such as housing and timber, if you have an extended period of cold or snowfall where you aren't able to transport goods as easily," says Turchioe. "When it's very cold and you're buried in snow, construction halts."
Both regions have heavy populated areas, including the Greater Toronto Area and New York, which means a proportionally larger number people and businesses were affected.
What's more, the worst of the winter weather took place in February and March, which is later in the season than normal, Turchioe says.
For example, in February, Canadian housing starts fell to their weakest level since 2009, analysts say, pointing the finger at the severe winter weather. February starts slid to around 151,200 units, based on seasonally adjusted annual rates, down from around 187,000 in January, according to the Canadian Mortgage and Housing Corp.
Activity picked up in March to 189,500 units, recovering some of what was lost in February, and to 181,800 units in April. Economists say the April slowdown marked a more normal level of homebuilding after weather-related swings in recent months.
"Weather has always been volatile, and always been extreme. What we have found is that patterns have been more persistent, and more extreme," notes Turchioe of Thomson Reuters.
While Central and Eastern Canada have suffered, the weather has been warmer across the western part of North America, which industry analysts say has led to an increase in lumber production.
Russ Taylor, president of Vancouver-based consultancy International Wood Markets Group, says it has been a "bumper year for log production," in the U.S. Pacific Northwest and B.C.
That extra supply has compounded the problem of lower prices, as companies tried to sell their extra logs.
While housing starts only account for about a third of U.S. lumber consumption, Taylor says they're the most volatile.
"When housing starts are impacted by weather that affects the whole industry. It ripples all the way back to the distribution yard," Taylor says.
Meantime, he says, the mills never stop. "They are pretty much invincible," Taylor says.
Turchioe of Thomson Reuters says it's too soon to predict what the weather will be like next winter, but says an El Niño pattern now developing could mean warmer-than-average temperatures over parts of North America in the upcoming winter season, and more precipitation.
"We have research that shows if El Niño builds throughout the summer it often persists throughout the winter," says Turchioe.
He notes the last big event of this kind was in 1997 through 1998, which was the winter known for the severe ice storm in Quebec and Eastern Ontario.
"It's the classic El Niño type of pattern where you tend to have above-average temperatures and a lot of precipitation. If El Niño persists and intensifies through this upcoming winter, the bias would be for warmer temperatures, but also increased storminess," Turchioe says.
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