US lumber prices have dropped to levels not seen since Nov 2020, but unfortunately the same cannot be said of the UK and Europe.
The US market is currently oversupplied after sawmills ramped up output, while at the same time demand decreased, following on after covid restrictions were lifted.
Early pandemic predictions of a collapse in the housing market went the opposite way, resulting in a building boom instead. Sawmills, who were not prepared for this, had consciously cut outputs in anticipation of less demand.
This caused a huge rise in prices and demand. The higher prices and lack of availability resulted in project after project canceling because the cost was too high. Sawmills responded by ramping up output again. Unfortunately by the time production was improved, the demand for timber disintegrated.
This has resulted in an unprecedented surplus of cut timber in the US, and hence lower prices.
While this all sounds great for some, it’s not actually a good situation for an industry which has seen a lot of flux over the past 18 months or so. So much so that US timber mills have agreed to curtail production for a few weeks due to try and rectify the collapse in prices.
Much to the US pallet buyers’ dismay, the pallet prices themselves haven’t actually dropped as much as one would expect, and this is because they are first working through a backlog of more expensive timber.
So does this price drop have a big effect on UK and EU timber prices? The short answer is ‘no’, the slightly longer answer is ‘*maybe a touch, but certainly not enough to level out the exponential rise in timber prices we’re experiencing now’.
One small factor in the UK and EU prices was demand and competition from the US market. This factor can now be struck off the list, however the other factors are still causing UK prices to skyrocket.
Unfortunately over in the UK we’re experiencing the perfect storm of:
Manufacturing is up! Great news! Unless you can’t get the goods to their destination. This is the situation we see ourselves in now. Consumers have noticed the less than perfectly full supermarket shelves, and slower delivery times over the last couple of months. And while this was understood easily at the start of the pandemic, the reasons for this logistical lull are very different. Since Brexit many of the EU-based drivers that would have taken work in the UK have not been able to resume work as usual.
Increased output in goods waiting to go is welcome news to nobody – and coincidentally it also occupies pallets that are now experiencing greater lag times than usual. Pallets are the ultimate reusable commodity, and we can usually expect a somewhat constant flow of pallets in and back out of distribution centres, with expected annual shortfalls around Nov-Jan.
So why not just get more pallets and/or timber? Well as much as we’d like to, sadly it’s not that simple. To begin with, we import most of our timber into the UK. Much of it coming from Eastern Europe. In recent years unexpected weather has contributed to a slowdown in felling trees and difficulties in transporting those trees. On top of this we have Brexit’s increased paperwork, taxes and red tape slowing the import of timber for pallets to the UK. Brexit also caused a dip in the Pound, meaning that timber became more expensive comparatively, and other EU countries (as well as Asian nations and the USA*) were willing to pay more for what little wood was available.
Now with all these challenges that had already been present at the start of 2020, can you imagine what would happen if we added in a global pandemic?! I expect you can, yes…
So, supply dropped as countries went into lockdown and many logistics workers – though frontline – will have had to isolate due to close contact or due to actually catching Covid-19.
On top of that the Government announced a Stamp Duty Holiday and sent construction workers back to work, creating a temporary boom in house sales and new builds. New builds use the same timber as we use to make pallets – and when the price competition comes from national building companies you can bet it drives up cost for everyone. Unlike the case with the USA, our house prices and production have not slowed, and competition for timber has never been greater.
Unfortunately for us this perfect storm for timber (and steel for nails, too!) is not yet over. We are starting to see a levelling off as we all get used to our new normal, but we are still predicting month-on-month price increases for the foreseeable and into the busy end of year season.
There are a few things that everyone can do to contribute and improve supply: