U.S. Financial Crisis Will Delay Recovery of Housing, Lumber Markets until 2010

(Western Wood Products Association)

The historic downturn in lumber demand will likely extend another year until the American financial system and housing market can be repaired, according to a new lumber supply and demand forecast from Western Wood Products Association.

According to the lumber trade association, lumber demand is expected to drop 15% to 44.3 billion board feet this year, then fall another 3% to 43 billion board feet in 2009. In just three years, demand for lumber has plummeted by some 20 billion board feet – more than what Western mills produced in all of 2005.

Housing starts are forecast to reach just 993,000 in 2008 and decline again to 933,000 next year. Since new housing typically accounts for more than 40% of annual lumber demand, the more than 50% decline in starts from 2005 has been a body blow to lumber mills.

The volume of lumber used in new home construction is expected to total 11.8 billion board feet in 2008 – less than half of the 23.3 billion board feet used just two years earlier.

Production in the West should total almost 14 billion board feet this year, slipping to 13.6 billion board feet in 2009. That would be the lowest annual volume since 1982. Since 2005, output at Western mills has declined some 28%, or more than 5 billion board feet. Lumber production in the U.S. South is forecast to decline 9% to 15.2 billion board feet this year, then fall 2% next year.

The demand decline, coupled with unfriendly currency exchange rates and higher transportation costs, is taking its toll on lumber import volumes. Following a 19% decline in 2007, total imports this year are forecast to decrease 21% to 14.5 billion board feet. A 3.6% drop is predicted for 2009.

Canadian imports, which represent more than 90% of the volume of imported lumber, are expected to lose market share. Imports from north of the border should total 13.1 billion board feet this year, then fall 3% in 2009.

Non-Canadian lumber imports, mostly from Europe and Latin America, have also plummeted. Just 1.4 billion board feet is forecast to be imported from non-Canadian destinations in 2008, compared to 3.2 billion board feet shipped to the U.S. in 2005.

The WWPA forecast calls for housing markets and lumber demand to grow in 2010, but cautions that any recovery will be slow.