Shortages, Not Demand, Cause Price Hikes

When composite framing lumber prices climbed to an all-time high of $510 per thousand board feet during the first week of this new year, the primary cause was not a surge in demand, but an artificial supply shortage brought about by sharp timber harvesting reductions in the Pacific NorthwesL maintains Karl W. Lindberg, Southern Forest Products Association president.

"This is what happens when zealots needlessly lock up massive expanses of forest to achieve narrow and questionable goals that protect plants and animals without considering the impact on people and jobs, he says. "The irony is that elitist preservationist policies could endanger prospects for improving the nation's economy. Consumers, builders and even lumber producers will ultimately be affected by these high prices."

He notes that with a volatile commodity item such as lumber, anY sign of scarcity or surplus is quickly translated by the marketplace into higher or lower prevailing prices. Lumber producers, either to sell their product or remain a competitive entity for their investors, stockholders and employees, must respond to the prices set by the market.

The market, he adds, always seeks equilibrium between supply and demand. "If scarcity of timber supply drives prices up beyond a certain point, consumers will either postpone wood purchases until prices come down or shift to substitute non-woo4 non-renewable building materials that are environmentally expensive. Thus, there is an invisible ceiling imposed by the market on how high lumber prices can go," he explains.

If high prices were demand-driven, Lindberg says, wide swings in U.S. softwood lumber consumption would be recorded. But since a higb of 49.3 billion board feet in 1988, softwood consumption has nestled in a narrow range, finishing 1993 at an estimated 45.6 billion board feet, a l.zEo increase over 1992. Industry projections for 1994 arc for a l%o rise to 46.1 billion board feer

Southern lumber manufacturen are meeting more than a third of U.S. demand with another third from Calm,d4 Lindberg says. But because they can't make up the shortfall, the market has forced lumber prices up.

Framing lumber remains a small component of the overall Price of a new home - tyliically some 77o on single family dwellings, he observes. "We certainly dislike the hike in lumber prices, but it would be false to say that surging prices of lumber will kill the current housing recovefy."

Lindberg points out the imbalance between supply and demand is gefting worse. Lunber production from the West has progressively slipped from 23.2 billion board feet in 1989 to2l.l in 1990, 19.1 in 1991, 18.7 in 1992, and an estimated 17.4 billion board feet in 1993. This represents a25Vo dip in five years, with projections for an additional 107o decline this year.

"Analysts look for the demand/capacity ratio for North American softwood to be 92Vo or 93Vo this year," he says. "Essentially that means the South, the West and Canada will barely be able to supply enough lumber to meet what is a modest demand. If the timber supply crisis in the West is not relieved, we can expect this trend to continue."

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