US Housing Total and 1-Unit Starts March & Benchmark Softwood Lumber Prices April 2021
This year started off with a very harsh winter, which kept construction and building activity down in January and February. March housing starts across North America show a significant rebound; something Madison’s expected, due to a big jump in permits in the January data. Usually it takes two months for new housing authorizations to actually break ground, so these increases in March housing starts should be no surprise.
Shrewd investors know that construction framing softwood lumber prices are a good leading indicator for US housing activity, including home building and home sales. Don’t miss out, get lumber price data updates directly to your desktop every Friday morning.
Compared to March 2020 total residential starts in the US last month shot up by +37% to a 1.74 million annualized rate, from 1.27 in the same month one year ago. Surpassing even the sharp rises in February, permits for future homebuilding increased spectacularly compared to one year ago, up by +30% to a rate of 1.77 million units last month compared to March 2020 when it was 1.36 million. March starts of single-family housing, the largest share of the market and construction method which uses the most wood, flew up by +37% compared to March 2020, at 1.24 million. Once again providing good indication for an increase in near-term future home building, single-family permits, meanwhile, were at 1.2 million, a significant jump of +36% compared to the same month last year.
Benchmark Softwood Lumber Commodity Western Spruce-Pine-Fir Price: April 2021
As for lumber prices, after reaching the seemingly unbelievable level of US$1,060, in the week ending April 2, 2021, the wholesaler price of benchmark softwood lumber commodity item Western S-P-F KD 2×4 #2&Btr was US$1,130 mfbm for the week ending April 9. This is up by +$70, or +6%, from the previous week. That week’s price is up by +$90, or +9%, from one month ago when it was $1,040.
Compared to the price one-year-ago, when it was US$310 mfbm, the benchmark lumber price for the week ending April 9 is up by +$820, or +265%. Compared to two years’ ago when it was $348, that week’s price is up by +$782, or +225%.
US Housing 1-Unit Starts & Permits March and Benchmark Softwood Lumber Prices April 2021
Total US carload traffic for the first 3 months of 2021 was 2,911,097 carloads, down -2.6%, or 77,267 carloads, from the same period last year; and 3,619,546 intermodal units, up +13.2%, or 421,513 containers and trailers, from last year.
The Association of American Railroads (AAR) reported April 7 US and Canadian rail traffic volumes for March 2021. After major declines in February, US railroads originated 1,156,158 carloads in March, up +4.1%, or 45,504 units, from March 2020. US railroads also originated 1,430,331 containers and trailers in March, up +24%, or 276,781 units, from the same month last year.
Total combined US traffic for the first 13 weeks of 2021 was 6,530,643 carloads and intermodal units, an increase of +5.6% compared to last year.
Regarding North American rail volume for the week ending April 14, 2021, Canadian railroads reported 79,509 carloads for the week, up +7.7%, and 75,499 intermodal units, up +14.4% compared with the same week in 2020.
For the first 14 weeks of 2021, Canadian railroads reported cumulative rail traffic volume of 2,120,832 carloads, containers and trailers, up +6.9%.
Although the temporary blockade of the Suez Canal last month interrupted global trade, the supply chain problems have become more serious. Next, construction products and materials are expected to have more shortages, longer delivery times and higher prices.
In a joint statement, the UK Construction Industry Leadership Council issued the following warnings to the industry:
“In the UK and globally, the demand for construction wood products is still high, and demand in all areas will continue throughout 2021. Unfortunately, this means that our current usability problems may worsen before they improve. Imported products such as wood, steel, roof tiles and bricks have been added to the list of existing products that are in short supply.
Before the Suez Canal was temporarily blocked, we found that the container cost and delivery time of these imported goods were slightly reduced. We expect that this situation will continue once the effects of the temporary closure continue.
In the foreseeable future, timber imports will be a problem. Timber production is not enough to meet world demand. In addition, other countries are also preparing to pay higher prices to ensure supply, which makes the UK’s ranking drop.
All users should plan for increased demand and longer delays, maintain open communication channels with suppliers, and order as soon as possible for future projects.”
Pallet prices have hit record highs, according to a U.S. Labor Department index, and European gauges show big jumps from the U.K. to Germany.
The market may stay hot through the peak construction season in the springtime and as COVID-19 vaccines help revive restaurants and event venues — adding to inflationary pressures rippling across supply chains.
“Supply is just barely keeping up with demand,” said Howe Wallace, chairman and CEO of PalletOne Inc., a Bartow, Fla.-based producer with facilities across the Southeast. “It’s a pretty dicey situation.”
At Virginia Tech’s Center for Packaging and Unit Load Design, the nation’s foremost pallet laboratory, “the companies we work with, every single one of them, said they’ve had their best year,” said Associate Professor Laszlo Horvath, the center’s director.
Pallets serve as the base of a so-called unit load, a standard way to ship products so they’re easy to move with forklifts and jacks. They are generally bought or leased by product makers and get baked into transport packaging costs. When a retailer or other end user is finished with pallets, recycling companies collect, repair and resell them. Some industries like bottling companies manage their own pallet pools.
There are roughly 5 billion pallets in use worldwide, and an estimated 2 billion in the U.S. alone — enough to go two-thirds of the way to the moon if stacked on top of each other. About 90% are wooden and the rest are made of plastic, metal or cardboard. Each year, some 513 million new wood ones are built in the U.S. and another 326 million are repaired and put back in circulation, according to Horvath.
Depending on the region, the usual price tag of $9 to $12 per wooden pallet may approach $15 this year. On April 9, U.S. government data showed the wood-pallet component of the producer price index jumped in March by the most since 1993.
“New pallets, used pallets, rental pallets — they’re all raising their prices,” said Chaille Brindley, editor and publisher of Pallet Enterprise magazine and Pallet Profile, a market report.
Pallets are made with a lower grade of hardwood and softwood than the timber used for construction and furniture. In the mid-Atlantic region, the price of pallet-grade hardwood rose to $635 per 1,000 board feet in March from $530 a year earlier, and a Southern California softwood more than doubled, to $520. Meanwhile, nail prices gained between November and March along with a 36% jump in the cost of wire rod, Brindley said.
The Homag Group has launched the largest investment program in its corporate history.
Over the next three years, €60 to €80 million are to be invested in the modernization of the main location in Schopfloch. Homag is investing a further €15 million in a new plant in Poland.
There are also plans to build a new logistics center connected to the site. The goals are a high availability of spare parts as well as lean and logistics processes for supplying the plant and customers. The new logistics center will also replace the remaining external warehouses.
Back in December 2020, the Homag Group had announced investments of over €12 million for the modernization of the plant at the Schopfloch location. The largest part of this investment sum is accounted for by a hall extension.
New buildings are also to be constructed in Poland, where the Homag Group already employs over 700 people.
Ralf W. Dieter, Homag’s CEO: “The Polish market has been growing for years, and in the meantime, we have reached the limits of capacity at our present location. In addition, the Polish plant plays an important role in our global production network. That is why we are building a new plant in Środa starting in the second quarter of 2021.”
It’s been just over a year since the COVID-19 pandemic arrived in Canada. Since then, almost every aspect of life has changed. In the forest industry, it has impacted the way we build, the way we trade and source, and the way we live and work.
Appropriately, this was the main theme of this year’s virtual Montreal Wood Convention (MWC), known as the Montreal Wood Convention Experience, which took place on March 24. The full conference can be watched at the end of the article.
The event consisted mainly of a panel discussion among four CEOs: Cees de Jager, CEO of the Softwood Lumber Board; Kevin Edgson, president and CEO of EACOM Timber Corporation; Craig Johnston, president and CEO of Forest City Trading Group; and Andy Goodman, president and CEO of Sherwood Lumber.
In response to the pandemic, most companies have transitioned to have as many employees as possible working from home. This is the case for each of the companies the panelists represent.
De Jager, who moderated the panel, posed a question: as vaccinations ramp up, will the changes to how we work be permanent, will we go back to work as it was before the pandemic, or will it be something entirely different?
Most of the panelists agreed that the future will likely include more flexibility when it comes to allowing employees to work from home, with some companies considering a hybrid model.
This change in how we work has also impacted the way we build. The trend has shifted from multifamily housing back to single family housing, de Jager said. Demand for non-residential construction – particularly for the hospitality sector – has diminished, and the repair and remodel market (R&R) is very strong. This has contributed to the spike in lumber demand and high prices that the industry has seen since last summer.
But are these trends a temporary response to the pandemic, or long-term?
There has been a pent-up demand for housing since the 2009 financial crash, and with millennials now representing the largest percentage of first-time home buyers, that demand is even higher and houses are in short supply, Goodman said.
There has also been a trend of families leaving the city for rural, “safer,” areas. But, cities always come back after crises like this, he said.
Johnston agreed, noting that we will see more people moving back into the cities as we recover from the pandemic, and that the multifamily sector will make a comeback.
“I think you have to start off by recognizing that the urbanization trend for the last 100 years has been pretty steady and those drivers haven’t changed,” Edgson added. “What’s happening now is more of a slowdown and a levelling-out of the rural-urban split. As the next generation comes on and the one after that, we’ll probably see a draw back into the cities.”
The strong R&R market is likely to last through 2021, even as the vaccines roll out. According to Johnston, the market may slow down in the summer, but demand for products will remain fairly steady as people look to finish projects they began planning months ago.
“R&R has always been a really steady part of our business,” Edgson added. “It’s a robust part of the market. It probably won’t be as robust as new home builds in the coming year, but I don’t see it waning.”
Education and engagement
However, it’s not all good news for the forest industry – the sector is still facing a labour shortage, even as unemployment comes back to pre-pandemic levels, de Jager said.
When asked by an attendee how the industry plans to increase the diversity of its workforce, Edgson admitted that the sector struggles with recruiting in its entirety.
“Therefore, the source of that solution is going to lie in parts of the population that are not currently well-represented in our industry, both in gender and visible minorities,” he said. “To engage those populations, we first have to recognize what it is about our industry that is not attractive and we have to make sure there is discovery of opportunities. It is an education and engagement process.”
Like any other forest products company, EACOM has felt the impact of the labour shortage. As a result, the company has been proactive in terms of its engagement, working to involve a broader population and introduce those who might not be aware of the industry to it, Edgson said. They are also recruiting foreign workers through the federal program.
“It’s a matter of education to us, in terms of what’s required to encourage people to come join us, and, quite frankly, us educating those people on what those opportunities are.”
An evolution in building
The labour crunch will also have an impact on how we build with wood. All of the panelists agreed that the lack of skilled workers has helped drive the trend from on-site construction to off-site, prefabricated construction. This type of construction allows you to schedule skilled workers more efficiently, in addition to being safer and more cost-effective, Goodman explained.
“At the end of the day, there has been an emphasis on all aspects of what we do in terms of control and quality,” he said. “And the control and quality of the work that comes out of off-site construction has proved to be better than on-site. So, I think it’s here to stay and it will continue to go higher.”
Johnston agreed, noting that his company has seen continued growth with their customer base in terms of off-site construction, and it is a growing segment of the market.
“I think this is an evolution that will continue to grow and people will continue to be drawn to the opportunities that softwood lumber provide,” Edgson added. “Mass timber is a good example of that.”
Speaking of mass timber, the panelists agreed that this is a growing trend that has multiple benefits. But, there are some challenges to its adoption, including architect and contractor knowledge, and reliability of supply.
“I think it’s an evolution that’s going to happen,” Johnston said. “That education about mass timber in construction is imperative.”
Understanding across the supply chain is improving and will continue to improve in the coming years, de Jager added. Although lumber supply is currently tight, mass timber is part of a longer-term trend that will take hold in Canada and the U.S., he said.
European market is ‘empty’
But, currently, the increased demand for lumber, along with lower interest rates in the U.S., has created pressure on the full supply chain.
So, the question now is where will the wood come from? One place it will not be coming from is Europe, said Reinhard Binder, owner and CEO of Binderholz, who shared a European perspective of the North American lumber market in an interview with Sven Gustavsson, manager of softwood and value-added lumber for the Quebec Wood Export Bureau.
According to Gustavsson, in 2020, the volume of imported lumber to North America grew from 3.5 million cubic metres in 2019 to five million cubic metres in 2020. The Forest Economic Advisors (FEA) has estimated consumption in the region would grow by 10 million cubic metres in 2021, and by an additional three million in 2022.
However, “the European market is empty,” Binder said.
“The U.S. is booming, but in the far east, like in China, the consumption of wood products is rising. China went to eastern Europe to buy logs and other materials for the packaging industry. We are completely without lumber,” he explained.
‘Tapped out for Canada’
Consequently, the North American lumber market will need to look for supply from other sources to meet demand.
Johnston believes some of this supply will come from the U.S. south. A new sawmill recently came online in the region, capable of producing three million mbf per week, he shared.
Goodman agreed, adding that there is a desire from the U.S. government to see if sawmills can produce more lumber using their existing operations.
But, “I think we’ll be challenged with the high prices and certain supply channels that are drying up,” he said. “There’s nothing that I can see that will provide short-term relief.”
To address supply shortages in the near future, he believes builders will begin using substitute products, such as different species of lumber or prefabricated lumber. Eventually, he hopes to see an equilibrium between supply and demand.
It’s not just the lumber traders and customers who are impacted by the tight global supply. Lumber manufacturers, such as EACOM, are struggling to find the logs they need to meet the demand.
“In terms of the Canadian context, all of the sawlog supply is pretty much allocated,” Edgson said. “We might see incremental improvement as we improve optimization, but there isn’t a basket of sawlog quality.
“There are areas of additional cut, but we’re looking at low-grade logs that might be more attuned to biomass or pulp and paper,” he continued. “We’re really tapped out for Canada.”
Looking ahead, the panelists agreed that while the current lumber market situation is abnormal, things will not return to the way they were before the pandemic.
“The new normal will be a different type of operating environment, but we’ll adapt,” de Jager said. “But, I think the future is bright for all of us on this.”