Since reviewing the US market for softwood lumber and for engineered wood products in April 2020, the international market for softwood has undergone some of the most seismic changes in living memory, owing mainly to the Covid pandemic. Producers and traders report unprecedented demand, supply shortages for many species and stratospheric prices, with little or no end in sight.

Given these unique circumstances, how to chart a way forward, make sense of what has happened and make some tentative predictions for the remainder of 2021 and 2022?

First, a look at what has brought the softwood world to its present situation, with reference to the US, still the world’s largest softwood market. Much if not all of the current situation has been caused either directly or indirectly by the pandemic.

Like the Spanish ’flu epidemic after the First World War, Covid has been a worldwide phenomenon. Few developed countries have escaped the economic consequences. However, it seems that China and most western economies are on course to make a relatively rapid recovery through 2021, provided the vaccine campaign, which has been so successful in the US, the UK and China, can be rolled out as effectively in Europe, South America, India and other developing countries.

This recovery could in turn cause further raw material shortages (including softwood) as demand ramps up in building and construction sectors.

It seems unlikely RMI will continue at quite the same breakneck pace it achieved in Europe and the US during the pandemic, as people gradually return to full time work and furlough schemes are wound up – though it should be remembered that not all RMI is done as DIY by householders and thus consumption of softwood lumber in the RMI sector is likely to continue at a relatively healthy level through 2021 into 2022.

Significantly, sales of lumber by Home Depot and Lowe’s in the US amounted to US$19.6bn in 2020 and will continue to be strong in 2021.

Housing starts in the US were up 19% in March over February and are ahead by 37% this year. This trend is set to continue for the remainder of 2021, pointing to increased softwood lumber demand. The consensus is for a 9-12% increase in starts in 2021, but rising mortgage costs in 2022 could put a brake on demand for new houses through 2022 into 2023. RMI could also be affected by homeowners having spent two years improving their homes. However, current forecasts show only a small decrease in RMI spend from US$161.8bn in 2021 to US$159.6bn in 2022.

Softwood consumption in the US was flat between 2016 and 2019, but jumped in 2020 and is forecast to increase by 4.5% in 2021 and 4% 2022. The US market is going to need imports from European producers for the foreseeable future as Canadian production declines, especially in British Columbia.

Canada still dominates imports to the US, with an 87% share of imports, but that’s down from 97%, with Europe at 8.5% and rising. Of total US consumption of softwood of 81 million m3 in 2021, 25 million m3 will be imported. Eleven million m3 of new production has also been announced in the US since 2018, which will come on stream between 2021 and 2023.

Lumber exports from Canada and the US to China are declining. From a peak of US$159m in 2018, US exports fell to US$65m in 2020. Much of Canada’s exports are low grade material from mountain pine beetle attack.

Canada is still the top destination for US lumber with sales of US$169m in 2020, followed by Mexico (US$127m) and Japan (US$70m) in 2020. Sales in Europe by contrast were US$4.9m in the UK, followed by US$4.7m in Italy and US$2.3m in Germany. The main species imported to Europe from the US are southern yellow pine in the UK and Italy, with some lodgepole pine being imported into Italy and Spain.

Promotional programmes by American Softwoods have been impacted by pandemic, but plans to ramp up marketing are in place for later in 2021 and into 2022, with a full programme of participation at trade fairs in Europe, South America and in the Far East.

There are also hopes negotiations on a US/UK trade agreement will restart. Any agreement would provide a boost to Anglo/ US trade.

With the exception of Canada and the Dominican Republic, US softwood sales to all major markets are down in the first two months of 2021, owing to continued high prices and supply shortages, after falling by 20% in 2020 for the same reasons. Exports are expected to increase by 3% in 2022.

Customers are frightened of being left with high-priced stock when the inevitable correction happens, but there’s little sign of this at present. Industry forecasts point to a possible correction towards the end of the third or into the fourth quarter of 2021. In the meantime, supply will remain tight and prices at or near record levels. A possible indicator of future price direction can perhaps be gauged by using the Chicago Futures Market for western SPF 2×4 lumber futures. May 2021’s price is US$630/m3 falling to US$460/m3 for March 2022.

There are, however, a number of factors that suggest lumber prices might fall earlier, such as an increase in production as Covidsafe working practices in mills reduce; an increase in inflation caused by the US$1.9trn US government stimulus package, a further US$2.5trn infrastructure budget and a summer slowdown in lumber consumption. However, given that global demand for softwood will likely remain strong for most of 2021, any decline in prices will probably be gradual.

Although lagging behind some European countries, the US is now beginning to embrace cross-laminated timber (CLT) and other engineered wood products. There are now 15 CLT plants operating, with four either under construction or planned. An estimated 1,100 mass timber projects have been completed to date.

The author would like to acknowledge assistance in preparing this article from Forest Economic Advisers and Russ Taylor Global.