As labor shortages and inventory depletion mean that supply cannot keep up with soaring demand, the frenzy sweeping the timber market may continue to pass the summer peak of residential construction in the United States.

The tension in the entire timber supply chain is very severe. It is difficult for sawmills to meet the surge in demand fast enough. At the same time, trucking delays and shortages of timber yard workers have increased costs, which are now being passed on to consumers. Timber futures have soared by more than 60% this year, reaching a record high. Analysts don't expect any relief until the end of 2021.

This will continue to promote hot housing prices, making it difficult for a large number of people to afford home ownership. According to the Standard & Poor's CoreLogic Case-Shiller 20 City Housing Price Index, US housing prices rose at the fastest rate in seven years in January. As people look for more space, the pandemic has driven demand for single-family homes.

According to data from the National Association of Home Builders, soaring timber costs have increased the average price of new homes in the United States by more than $24,000. Industry groups and lawmakers called on the Biden government to step in and find remedies for the timber shortage.

"Each part of the supply chain has different problems," said Brooks Mendel, CEO of Forisk Consulting, a Georgia Forest Supply Researcher. "In the past two years, none of the sawmills I have contacted has filled all the slots."

Compared with two years ago, this is a huge change. In 2019, weak demand prompted companies such as Canfor Corp. and West Fraser Timber Co., the world's largest timber supplier, to continue to cut production and close factories. As the pandemic keeps people indoors, it has triggered a series of self-upgrading, complete renovations, and buying larger houses​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

When demand remains strong throughout the winter, which is usually a seasonal off-season, steel mills have no time to replenish inventory. Huihao CEO Devin Stockfish said last month that now, as North America re-enters the peak construction season, timber prices will remain high "for the foreseeable future" and inventories are "extremely scarce." .

Since the beginning of the pandemic, timber futures prices have more than tripled, hitting a record high of US$1,157.50 per 1,000 board feet on Monday.

The spot market is also booming. According to data from the timber pricing company Random Lengths, the oriented strand board used as wall and roof sheathing soared to a record $999 per 1,000 square feet at the end of March, up from $329 in June.

As far as commodities are concerned, the supply chain is in chaos as the economic rebound drives up demand. Although investors temporarily gave up some price optimism, the market with production problems is still going up. Coffee is a classic example, and there are signs that the global deficit is widening. At the same time, dwindling rubber supplies have caused trouble for automakers.

For timber, chronic labor shortages have restricted efforts to increase inventories in places such as the southern United States, which owns half of the country’s production. Many jobs in this industry are relatively low-paid, require manual labor, and can sometimes be dangerous. Even with high unemployment, people cannot fill vacant positions.

Data from the US Bureau of Labor Statistics show that the number of people working in sawmills and wood protection in the United States has fallen by about 30% compared to 20 years ago, and the number of loggers has fallen by nearly 40%. Although automation reduces the number of workers required and improves efficiency, analysts believe that current employment levels are below demand.

"The chronic labor shortage is an important problem," said Paul Jannke, head of Forest Economic Advisors LLC, a wood product analysis company near Boston. "In the southern United States, you don't have enough skilled labor to run all the new capacity needed to meet demand."

Labor is not the only long-term supply issue. Climate change and extreme weather are threatening logging. As the warm winter allows these small pine beetles to thrive in more places around the world, the plague of small pine beetles has become more and more serious. Forests on the west coast of the United States and Canada are increasingly concerned about large-scale wildfires. At the same time, the timber industry and environmental advocates are also debating which land should be protected.

However, beetle infestations in Europe actually helped increase supplies in the United States this year, because these insects are killing so many trees and promoting logging. In a recent speech, Jannke stated that U.S. timber imports need to increase by about 15% in 2021 to meet the growth in demand, most of which are expected to come from Europe.

It is expected that timber supply will not return to normal after the peak of housing construction this year until the end of 2021. At that time, demand may begin to weaken. But more importantly, increased output will help rebuild inventories. Mendell of Forisk said that the southern United States is expected to produce a record this year.

Not all companies face worker issues. West Fraser said that its US sawmills did not encounter any labor supply challenges, and Louisiana-Pacific Corp., a major oriented strand board and siding producer, also said it did not see labor restrictions.

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