Construction-related markets continued to show strength in the second quarter of 2012 (Table 1). Housing starts increased 28.5% compared to the same period last year, and construction spending was up 8.1%. Remodeling dipped just half a percent, down 3.3% from last quarter. As a result, sawmills were able to sell lumber at higher prices, with a 16.7% increase quarter over quarter and almost matching the year-over-year percent change that housing starts experienced (28.5% for housing starts and 28.4% for lumber prices). With this increased demand for lumber over the last year, sawmills have increased production and stepped up purchases of sawtimber. (While these numbers look good, the price increase observed in lumber has not trickled down through the sawtimber supply chain, however.)
According to Forest2Mill and Mill2Market data from first half 2012, sawmills are on pace to purchase 6.5% more sawtimber volume this year compared to 2011; they are likely to surpass 2007’s volume by almost 4 million tons.
This is a staggering number considering that in 2007 housing starts were almost double what they are today. What is even more staggering is that sawtimber delivered prices currently average $39.52 per ton, almost the same price as 2011 (they have fallen sequentially since 2010 even though sawmills have increased purchases). So what is behind this seeming anomaly?