Lumber prices spike as wildfires cause producers to cut output, citing 'significant' supply chain challenges

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Lumber prices spike as wildfires cause producers to cut output, citing 'significant' supply chain challenges
The Bootleg Fire burns through vegetation near Paisley, Oregon, U.S., July 20, 2021 David Ryder/Reuters
  • Lumber futures have jumped in recent days on concerns over the impact of wildfires on supply.
  • One of North America's largest lumber producers said it would cut output at sawmills due to the fires.
  • One lumber expert told Insider the production cut was the catalyst that confirmed to traders prices had hit a bottom.

Lumber futures have jumped in recent days as concerns mount that wildfires in Canada and the Western US will snarl production and supply chain routes.

On Tuesday, Canfor Corporation, one of North America's largest lumber producers, said it was curtailing approximately 115 million board feet of production capacity at its Canadian sawmills. The company cited "significant supply chain challenges" amid a "transportation backlog in Western Canada as a result of the extreme wildfire conditions."

Lumber futures jumped 10.8% Thursday, and are trading nearly 15% higher than Tuesday's prices. Lumber is still more than 62% below the record-high reached in May. Prices skyrocketed earlier in the year as the pandemic-fueled housing boom pushed up demand, though recently supply and demand levels have begun to even out.

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"The market overcorrected, it was waiting for a catalyst," said Michael Goodman, director of speciality products at Sherwood Lumber, referring to recent moves higher after weeks of lumber prices falling.

He added that curtailment of operations at sawmills was not the sole reason for lumber's recent price movement, but instead the catalyst that showed people prices had hit a bottom.

Goodman now sees prices moving higher as customers start buying again, though he also expects the market to be highly volatile for some time.

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While prices are rising and production cuts are creating new supply constraints, Goodman said lumber will be volatile for the next year.

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