Wood prices rise amidst increased construction spending

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  • Building spending in the USA rose by 1.3%, compared with the expected 0.8% in October.
    Investors are focusing on reconstruction projects after the official end of the Atlantic hurricane season.
    Record low interest rates and a weakening US dollar have catalyzed the upward trend in timber prices.

    Lumber prices are at their highest level since September 2020, and after ending October with a slump, random length lumber futures have risen by about 23.44% and are trading at $649. A weaker US dollar and increased construction activity have catalyzed the recovery.

    Timber prices
    Construction spending in the USA on the rise

    The US Department of Commerce announced on December 1 that construction spending in the country had increased by 1.3% in October. Analysts had predicted an increase of 0.8%. The increases followed the downward correction in September to a decline of 0.5%.

     

     

     

    The construction of single-family homes largely contributed to the gains in October. For months now, the shortage of new single-family homes has been driving builders to step up such projects. As a result, the construction of these houses rose by 5.6% in October. This was one of the factors that enabled the 2.9% increase in private housing construction.

    COVID-19 has led to increased migration to US suburbs. In addition, the Federal Reserve maintained record low interest rates between 0% and 0.25%. The low interest rates have improved the affordability of credit, an aspect that has increased the demand for housing and thus the rise in timber prices.

    Weak dollar favors timber prices

    For anyone who wants to invest in commodities, a weakening US dollar is a bullish sign. The value of the dollar is inversely related to the prices of the various commodities. The US Dollar Index (DXY) is trading at $90.97, the lowest level since April 2018. This weak dollar environment has supported the recovery in timber prices.

    Analysts have predicted that the downward trend will continue into 2021. Speaking at Bloomberg Markets, JPMorgan’s senior portfolio manager Julio Callegari said: “We remain biased towards a weaker dollar, particularly as we move into 2021. Basically, we think we have the key elements for some dollar weakness”.

    U.S. weather favors construction activities

    The timber market continues to respond to the news that the severe Atlantic hurricane season has officially ended. Of the 30 registered storms, 12 hit the US coast. The number is higher than the record of 9 storms in 1916, and the season also included 13 hurricanes. Laura was the worst hurricane. The hurricane left damages of about 14 billion dollars.

    Now that the hurricane season is officially over, reconstruction work is beginning. As a result, there will be a high demand for sawn timber; a factor that will drive up prices.

    At the same time, most states in Central and Eastern Europe of the USA have been experiencing warm weather since August. As the high temperatures continue into November, contractors have been active throughout the season. Continued activity on construction sites has supported timber prices.

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