The price of lumber has already bottomed after a sharp sell-off and should stabilize around current levels in the coming weeks, according to Ed Egilinsky, managing director and head of alternative assets at Direxion.
Lumber futures traded slightly lower around $530 per thousand board on Monday, and sit nearly 70% below a record high of $1,711 reached in May. Prior to that record, lumber prices had skyrocketed more than 500% during the immediate aftermath of the COVID-19 pandemic amid supply-chain disruptions and accelerating homebuilder growth.
Egilinsky said he sees the recently tested $500 level as a support level for the commodity, even though it’s still elevated relative to pre-pandemic pricing.
“I think it’ll stabilize here relative to the downtrend that it’s seen pretty much since the middle of July,” he told Insider.
Egilinsky laid out three specific drivers he sees underpinning lumber in the coming weeks. These in confluence should significantly curtail the supply of lumber and push prices higher, he said.
First is the tightening labor market. Egilinsky said this is the reason why fewer mills are in operation.
His assertion was supported by new data that showed job openings in the US soaring to a record 10.1 million in June, which exceeded the number of available workers for the first time since the pandemic.
Second is the raging wildfires.
“Fewer mills are in operation due to the wildfires,” he said, adding some of the impacts of these remain unforeseen.
These fires, for instance, have already affected major players, such as Canfor, one of the largest lumber producers in the US. The company on July 20 announced cutting back output at its mills in British Columbia.
Third is the emerging Delta variant.
Egilinsky said the threat of the new strain might risk the shut down of sawmills, disrupting yet again a supply chain that is just about to bounce back.
“[Sawmills] may need to be shut down for any period of time,” he told Insider.