Lumber boom great news for industry, but expect higher construction prices next year

An unexpected rebound in wood product prices this month is boosting profits for Canadian forestry companies but leaving homeowners and buyers with the prospect of higher home and renovation costs in 2021.

In a report, RBC analyst Paul Quinn says prices for lumber and wood panels are up in December due to strong housing markets and limited capacity to increase North American production following a seasonal softening of prices in October and November.

He says next year could be even brighter for producers than 2020, adding that record high prices set last summer as COVID-19 forced people to work from home will likely continue or be eclipsed in 2021.

Kevin Lee, CEO of the Canadian Home Builders' Association, says the price volatility and shortage of supply of some wood products means builders are having difficulty taking advantage of the current strong market for new houses that is expected to continue in 2021.

$30,000 more

He says escalating lumber and panel prices this year have added as much as $30,000 to the construction cost of a typical 2,500-square-foot (232-square-metre) house in Canada.

RBC says it also expects more mergers and acquisition activity in the forest products industry next year following the recently announced $4-billion all-stock takeover of Norbord Inc. by West Fraser Timber Co. Ltd.

"As we head into 2021, we have seen unprecedented pricing levels to close out 2020 with (lumber) prices moving higher following a pullback in October/November," said Quinn in the report.

"With demand likely to get stronger as dealers get ready for what should be a very strong spring building season, we expect that prices will remain at a high level during the first half of the year."