By Darren Lum
Rising lumber costs in North America have seen record setting prices and there are multiple aspects to it that need to be considered, say affected industry members.
There was a confluence of actions and events before and during the pandemic from sawmill closures, the employing of an economic strategy related to an expectation of weaker demand for lumber and related products during the pandemic to a strong demand for home ownership, spurred on by low interest rates to encourage lending. And then there was how the pandemic itself changed business practices and people’s lives.
Malcolm Cockwell, the managing director of the Haliburton Forest’s forest product division, which includes the Haliburton Forest Sawmill, Huntsville Forest Products, and the Almaguin Forest products said it’s important to remember the spike in lumber prices is related to softwood and not hardwood, which is what the Forest harvests.
“Hardwood lumber has not spiked anything like softwood lumber. In other words, my colleagues and I do not have much skin in the game when it comes to softwood lumber prices,” he wrote in an email.
Cockwell, who was named as the Forests of Ontario board of directors’ president in April, said the lumber industry is cyclical.
“The sawmills need to ‘win’ sometimes. This is one of those times. In many cases, the profits generated by the sawmills will be used to pay down debt and invest in equipment upgrades. That refinancing and reinvestment is ultimately very good for the communities and the forests surrounding the sawmills, because it means those sawmills will be competitive when the tough times roll around again,” he wrote.
Cockwell said the profits from the higher prices of softwood help everyone in the industry.
“While the big softwood sawmills are doing pretty well these days, not all of the extra margin is going to the sawmills or even to the retailers. There are also brokers, warehouses, railways, and truckers involved. My point is that a lot of people are benefiting from these high prices, and those benefits are being spread around the economy,” he wrote.
From his Haliburton location, Emmerson Lumber Limited owner Kim Emmerson has been in the industry for 48 years and has never seen anything like what is happening right now.
“Lumber is a commodity like a lot of commodities like gold, or oil or whatever. It does have swings. There’s no doubt about it historically, but it has never, ever, ever swung like this,” he said.
He said this situation is about how demand is far exceeding supply.
“People may see stacks of wood around, but basically I can tell you it’s very hard to get, so lumber yards have been stocking up as much as they can before they run out. We’re not happy about it, but it is the way it is right now,” he said.
With locations in Haliburton and Carnarvon, his lumber centres have been busy, leading to exponential growth in purchases for renovations and for new builds.
“I know for our area … a lot of the seasonal residents are here because they can’t work or are working from their cottage. They’re doing stuff and a lot of the people are actually bored as well, right? Because maybe they’re not working at all. So what are they going to do? They can’t go anywhere so what they’re going to do is fix whatever up,” he said.
There isn’t just a scarcity of lumber. This includes plastics and steel. The wait times on ordering have grown, which isn’t dissimilar to how people are waiting for newly purchased vehicles and appliances, Emmerson adds.
He’s seen the disappointment from customers, but also their understanding.
“We try and be as apologetic as we can be, but then they’re used to that in other sectors and things are not the way they used to be, so people have been pretty good. They really don’t give us a hard time. They’re not happy about it, but they don’t give us a hard time about it either. Most people,” he said. “Some people have said I’m not going to build that deck or not going to do this because it’s ridiculous. They’re entitled to that opinion. That’s fine … but other people are saying I don’t care what it costs I want it.”
Canadian Home Builders’ Association CEO Kevin Lee, who has worked in the housing industry for 30 years, said the lumber industry in Canada was challenged before this situation.
“Lumber has historically been volatile and in fact prices were quite low and the Canadian lumber industry was struggling a little bit prior to the pandemic and then it’s just skyrocketed and the complete opposite so it’s yet another thing that is unprecedented when it comes to COVID-19,” he said.
There are two concerns among his members. One, is price, but the other is supply.
“Many of our members are just having a hard time getting a hold of wood products. So that’s delaying construction times, both for renovation and for new construction in terms of closings. We just did a survey of our members across the country and on average, lumber and other supply issues are delaying closings by about six weeks. It’s quite an issue for everybody,” he said.
Another issue with supply was the closure of a major sawmill in British Columbia prior to the pandemic in 2019 and how a low interest rate has motivated people to buy, creating more demand, exceeding supply.
“Really when you look at it it’s a tale of supply and demand in two areas … one is a lack of supply of housing, especially in our larger urban centres and lots of demand … that’s a case even before the pandemic hit. And [two], with the pandemic, there’s been such an emphasis on the home that people wanted to invest more,” he said.
He added people are looking to create new spaces in and outside of their homes, including work spaces.
The lumber situation isn’t only affecting Canada, but all of North America.
“The United States is experiencing the exact same housing boom and it’s particularly important with lumber because obviously we export a lot of lumber to the States. It’s a totally integrated North American lumber market,” he said. “We have huge demand for housing, therefore for lumber. Both in Canada and the United States. And you do not have enough supply. The lumber mills shutdown initially. They’ve been catching up. In Canada those lumber mills are basically operating back up at a 100 per cent, but in the United States that’s not the case. They’re still lagging behind and with that kind of demand and a lack of supply you’re really seeing lumber prices escalate to record levels.”
Haliburton County Builders’ Association president Glenn Evans said the average cost increase for wood required for contracting jobs here has been close to 42 per cent.
“That makes a big difference in both projects big and small,” he said. “The question is perhaps how do we deal with it? I don’t know.”
The co-founder of Cedar Winds said there is a constant challenge with pricing work for the contractor and the client related to the fluctuations of the market.
“Is it going to continue? From an individual contractor’s stand point one of the biggest problems we have is we price a job today that may or not get built between now and say, September so the fluctuation in cost between now and September, could be a negative or a positive in today’s environment. Over the last 13 or 14 months, it’s clearly been a positive as in prices have increased steadily over the last year,” he said. “I don’t know what the strategy is to try and contain it. The fear for the average customer/client that we have is do we assume that prices are going to increase by another 15 per cent between now and September and build that into our costs? Or do we assume they are going to stay where they are, and, if they do rise by 15 per cent, we’re at risk of business not proceeding as usual.”
With some work a year away from even beginning, his company has communicated to clients the potential for increased costs related to higher material costs.
Although there are safeguards for contractors in work contracts to ensure compensation is permitted to cover higher material costs that are not within the control of the contractor, Evans said it’s not something he or other contractors like to do, or want to do and recognize the potential challenge it poses for customers.
“That’s where problems can lie. We as contractors are the messenger. We’re just passing on this increased cost to our customers. We’re not necessarily saying well this is an opportunity for us to make [money] … there’s no gain to the contractor is the message. Because of the increased lumber prices we’re just hoping to cover our costs,” he said.
In addition to the rising costs, there are problems surrounding the scarcity of materials.
As the pandemic hit there was an understanding that demand for wood products would slow.
“And then exactly the opposite happened. So, the supply went down because of an expected lowering in the market and the market did not lower. It actually increased so the market went one way, the stock [of supplies] went another way and the prices went up obviously to try and curb demand,” he said.
He acknowledges that while there were shortages of materials during the summer last year, that situation has since improved in the new year for Highlands’ contractors and builders.
“Right now there is no threat of not being able to get the lumber or the materials that you need. Now is that going to change over the next six months to a year? It’s hard to tell. There are lot of different factors out there that would impact that. There’s environmental concerns, as far as forestry and harvesting. There’s restrictions happening in that avenue of things that could impact it. We haven’t had any catastrophes in the United States. Storm season has been fairly passive. There hasn’t been a huge demand for those things like that in the United States. So that means our stocks have been relatively stable. What could happen going through 2021 with some of those things, who knows? The fires in 2020 and 2019 played a role. There are so many different factors that can control or contribute to lumber shortages and those things. Though COVID is not helping, but there are a lot of other aspects that need to be considered,” he said.
Cockwell said to not expect demand to lessen anytime soon, which was in part related to home improvements.
“But the demand drivers now go far beyond that. Housing and remodelling/renovation mark ets are expected to stay strong for years to come due to aging housing stock and favourable demographics. There is a point at which high lumber prices will suppress demand, but I do not think we are there yet,” he wrote.
He expects supply issues to ease with new sawmill capacity coming online, particularly in the southern U.S. and upgrades to sawmills in northern Ontario. However, supply will be constrained by labour availability to be able to hold second and third shifts when it it comes to rural and remote communities where the big softwood sawmills are located, and the permanent closures of sawmills in regions such as British Columbia, where timber supply has been significantly reduced by the Mountain Pine Beetle.
“The spike in softwood lumber prices is a profound reminder for many people as to how much we rely on reasonably-priced forest products in our daily lives, and that reasonably-priced lumber comes from well-managed forests and well-built manufacturing facilities. The same is true for so many other primary, as well as advanced forest products, including firewood, books, rayon, toilet paper, cellophane, medical masks, plywood, food flavourings, LCD screens, pill capsules, and so on,” Cockwell wrote.