At this moment (March-July 2021) wood prices have gone through the roof. And since our houses are wooden houses, it has consequences for our business, and maybe for you as a consumer as well. Why did prices go up, and by how much? And when will they go down again?
Why did prices go up?
To be honest we don’t know exactly why prices went up. Supply and demand, that’s all we know. And there are many stories in the market at the moment, such as:
- the Chinese are buying all the wood
- the Americans are buying all the wood
- the Russians are not selling any wood
- a bug has infested the lumber forests
- and so on etcetera.
That’s all supply side stories, and as far as we are concerned they’re all stories, rumours, and not facts. We have our own story, we think many production companies scaled down their capacity when corona started, and now all of a sudden stocks are running out. But we also have no facts at hand, so it is just what we think.
How far did they go up?
Quite a bit, and that is a fact. Next to the bitcoin, the lumber market showed the biggest increase over the last six months. Look at the next graph.
The graph shows the last three years. Prices were fairly stable at arond 350 US$, and then at the start of the corona-crisis at the end of 2020 things started going wrong. First a dip, and then a spike and a climb all the way to 1645 euro. A fivefold increase over a period of less than a year. Only the bitcoin did better.
How quickly will it go down again?
Just like the bitcoin, very quickly. And even though Elon Musk never tweeted about wood, prices are going down much quicker than they went up. Over the last four weeks lumber tumbled from 1050 back to 700 US$, a loss of 34%, see graph below.
Will it go back to the previous 350 US$ level?
If we knew the answer to that question, we would not be building houses, instead we would be in the wood futures market, making loads of money with our feet on the desk. We read some articles about the old 350 US$-level being way too low and prices will stick around 500-600 US$, but we suspect that the people that write these articles are clueless just like us, otherwise they would not be writing articles, instead they would have their feet on the desk. We will have to wait and see.
What about the cost of a wooden house?
Now here it gets a little interesting. Because while raw lumber prices increased by 500%, we never saw such an increase in the prices of the final consumer wood product that you buy in the shop. OSB, wood fiber, laminated spruce, planed larch, you name it, all prices went up, but never by 500%. And that’s because the cost of raw lumber is not the only ingredient in the cost of finished wood products. There is transport cost, machining cost, fixed markups and other cost components that make that the cost of finished wood products goes up less than 500%, and also there is a time delay. Raw lumber prices go up today, but finished wood product prices go up only after a week or a month or a quarter, changes take a little time to propagate through the supply chain. The same happens when prices go down.
And as with prices for gasoline and coffee beans, there is a supply chain inbetween the wood production forests and the shop, and this supply chain actively tries to influence prices. There are dealers and middle men and brokers that all try to manipulate prices in a way that benefits them most. It is still supply and demand, but sometimes there is no transparent and direct link between raw lumber prices and finished wood product prices.
What about wooden houses?
Running projects of course we finish, but at this moment we are delaying the start of new projects until wood prices have gone back to reasonable levels. We think we will need another month, maybe two, before we can start building new projects again.
For quotes or project cost calculations the situation is a little more difficult. We can calculate the construction cost for your house, but the prices will be valid for maybe two weeks. After two weeks the market has changed and we must re-calculate. The good thing is: the new price will be lower.