the bulls still have the mantle

Lumber price is on a rebound and appears in good shape to rise above the crucial zone of $1,000. It has been seesawing around that level since late last week after pulling back from June 2021’s high in mid-January.

Lumber price outlook

In the past year, lumber price was one of the examples cited in the extensive discussion on heightened inflationary pressures. Heightened demand pushed futures at the Chicago Mercantile Exchange (CME) to levels never recorded before at $1,733.50 per 1,000 board feet in May. Granted, Fed Chair’s notion that supply chain challenges had contributed to the unprecedented spike in prices was true.

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Nonetheless, there were stronger drivers of the rally. The coronavirus pandemic pushed governments to enact lockdown measures. As people spent more time in their homes, lumber demand for do-it-yourself renovations surged. Besides, eateries needed to establish outdoor spaces in their efforts to adhere to the social distancing rule. Additionally, financial stimulus and the subsequent reduction of borrowing rates boosted demand for housing in the US.

Months later, the previous bullish factor turned bearish. Eased lockdown measures triggered a shift of people’s focus to travelling and social activities. As a result, lumber price dropped by over 70% as at August before bouncing back.

Since early December, CME lumber futures have been above the critical zone of $1,000. Indeed, after dropping past the once steady support level of $600 in early November, lumber price has surged by over a 100% as at mid-January. It has since pulled back although at its current level of $979.9, the bulls have an opportunity to push it back above $1,000.

Lumber price forecast

In coming months, the lumber market will likely react to the bearish and bullish forces in equal measure. On the one hand, the lowering of duties on softwood lumber imported from Canada will likely curb the upward potential for lumber price. President Biden’s administration had initially stuck to Trump’s 20% duties before reviewing it to 17.9% in November.

Earlier this week, the US Commerce Department reviewed them further to 11.64%. Nonetheless, supply chain disruptions persist after the floods experienced in British Columbia in late 2021 destroyed roads and railways.

 Besides, the recent downward correction in lumber price was a reaction to the higher mortgage rates. In the past month, the average 30-year fixed mortgage rates rose by 3.55% as the market prices in several interest rate hikes in the course of the year.

While the surge in rates will temporarily trigger a decline in housing sales and the demand for lumber by extension, the shortage for new housing will likely persist. Notably, the millennials have spurred demand as they shift from student loans to mortgages. With these factors in mind, the critical level of $1,000 remains one to watch in the immediate and medium term.