Wood products pricing surge expected to persist, raising 2021 house, renovation costs

·3 min read

CALGARY — An unexpected rebound in wood product prices this month is boosting profits for Canadian forestry companies but leaving homeowners and buyers with the prospect of higher home and renovation costs in 2021.

Prices for lumber and wood panels are up in December due to strong housing markets and limited capacity to increase North American production following a seasonal softening of prices in October and November, said RBC Capital Markets analyst Paul Quinn.

"As we head into 2021, we have seen unprecedented pricing levels to close out 2020 with (lumber) prices moving higher following a pullback in October/November," said Quinn in a report.

"With demand likely to get stronger as dealers get ready for what should be a very strong spring building season, we expect that prices will remain at a high level during the first half of the year."

Next year could be even brighter for producers than 2020, he said, adding that record high prices set last summer as COVID-19 forced people to work from home — thus sparking interest in renovations or buying a bigger house — will likely continue or be eclipsed in 2021.

The price volatility and shortage of supply of some wood products means headaches for homebuilders trying to take advantage of the current strong market for new houses that is expected to continue in 2021, said Kevin Lee, CEO of the Canadian Home Builders' Association.

"Our members price houses based on expected near-term prices for lumber and then, when they go up, it becomes very hard to operate," he said.

"They went down a little bit through October but you're still talking about lumber prices three or four times the prices from a year ago. And now they've escalated right back up again."

He says higher lumber prices this year have added as much as $30,000 to the construction cost of a typical 2,500-square-foot (232-square-metre) house in Canada.

Higher wood product costs haven't affected the work volume for Shamrock Mountain Building Ltd., a home and renovation contractor that employs 14 staff split between Calgary and the ski resort community of Golden, B.C., according to owner Dale Higgins.

"All you can do is pass it along. Obviously prices are going up, you just have to be honest about it," he said on Wednesday.

"Some people complain a little bit more about it ... (but) if they're getting multiple quotes, everyone's saying the same thing. It's not like just one person is charging 20 per cent more for lumber."

Higher prices are encouraging Western Forest Products Inc. of Vancouver to redirect logs harvested on the West Coast that might have previously been exported to Asia into its Canadian mills to make value-added products, said CEO Don Demens.

"The opportunity we have is to really move up the product value chain and increase our production," he said in an interview on Wednesday.

"Some of the logs on the coast were being exported into China. We can repatriate those logs into our sawmills and manufacture lumber products for customers in North America."

He said the company remains cautious about increasing spending, however, because of unknowns posed by the ongoing COVID-19 pandemic.

Shares in Western Forest Products closed up 7.5 per cent at $1.29 on Wednesday after RBC analysts raised their target price by 50 cents to $1.50 per share.

In a report, RBC cited strong wood product demand and the lower U.S. lumber import duties for its bullish rating.

In a new forecast out Tuesday, RBC raised its composite price estimate for lumber in 2021 to an average of US$575 per thousand board feet, up from US$475. Its average price is US$560 for this year.

It says western Canadian oriented strandboard, a type of panelling often used to clad new houses, is expected to average US$430 per thousand square feet in 2021, up from a previous estimate of US$305 and an average of US$420 in 2020.

This report by The Canadian Press was first published Dec. 23, 2020.

Dan Healing, The Canadian Press