The pandemic fully affected the bulk of almost all raw materials due to the economic blockade. Mainly, with a decrease in demand and, as a consequence, a drop in prices. The worst part was taken by the orange juice, the gold, the wheat flour and the silver. Both precious metals 6.5% and 2.6% were left respectively. Now, the hasty economic reactivation supported by the vaccination campaign is causing the prices of raw materials to have been boosted exponentially.
And among them, there is one that has taken off like never before: wood. An incredibly important material for construction and country logistics.
The price. The wood futures market closed a few days ago at 1077.49 euros the 304.8 meters of table. This figure represents a historical maximum with no previous reference in the graphs, as this article in El Economista explains. Compared to the same month last year —216.21 euros—, it has increased by almost 400%. And that implicit shortage is already evident throughout the wood supply chain. Sawmills have struggled to increase their production capacity fast enough to meet increased demand with the revival of the economy.
Meanwhile, transport delays and a shortage of workers at the sawmills themselves have increased costs, which are now passed on to consumers. To give you an idea: wood futures have soared more than 60% so far this year and analysts believe that the trend will continue until the end of 2021.
Why is it so expensive? The reasons for this shortage are mainly the growing housing market and the construction market in many parts of the world, especially in the United States, which is supported by exports from Scandinavia. Like China, which has once again increased its purchases in the Nordic countries. Suffice it to say that Scandinavian sawmills’ stock levels are the lowest in 20 years. And there have been several factors that have created the perfect storm.
It came from far away. In 2019, weak demand, excessive inventory levels and severe weather conditions caused wood suppliers to close factories and reduce production. The result was a drop in wood prices and the closure of some sawmills by companies such as Canfor and West Fraser Timber, the world’s largest supplier of wood.
And the pandemic arrived. To all this was then added an activity paralyzed by the Covid outbreaks that were spreading in almost every corner of the world. And of course, low interest rates and the need to stay at home made Americans more prone to the demand for new homes, thus increasing the demand for wood, a key material in the country’s construction. In addition, there was a boom of home renovations and extensions. This situation caught producers off guard and began to push prices higher.
Lack of pallets. The rising cost of wood has a direct disastrous consequence for the logistics industry. Why? The pallets. The shortage of wood for pallets has caused supply delays and, at the same time, is directly pushing the prices of EPAL pallets. The European Federation of Wooden Pallet and Packaging Manufacturers (FEFPEB) points out that the few supplies of wood in some international markets are expected to lead to increase demand and price. And they play a critical role in essential food, beverage and pharmaceutical supply chains, where demand remains stable during the pandemic.
No sawmills. But that’s not all, the number of people who work in sawmills and wood conservation in the US has fallen by approximately 30% compared to 20 years ago, and the number of loggers has decreased by almost 40%, according to data from the Bureau of Labor Statistics. Although automation has reduced the number of workers needed and increased efficiency, analysts consider current employment levels to be below demand.
Deforestation and climate change. And labor is not the only long-term supply issue. Climate change and extreme weather conditions threaten logging. An infestation of small mountain pine beetles is getting worse as warmer winters allow the insects to thrive in more places around the world. Massive wildfires are a growing concern for forests on the west coast of the US and Canada. Meanwhile, the logging industry and environmental defenders are fighting over which lands should continue to be protected.
However, US timber imports will need to grow by roughly 15% in 2021 to meet increased demand and much of it is expected to come from Europe, where there is also a shortage.