Key Highlights

  • Lumber prices rebounded to above $620 per thousand board feet as supply tightened faster than demand.
  • US sawmill production capacity fell 6% from a year earlier, with output declining for a second consecutive quarter.
  • Prices remain 3.8% below year-earlier levels amid subdued buyer activity and a weaker housing market.

Lumber prices have staged a notable rebound, climbing back above $620 per thousand board feet as supply-side constraints tightened faster than underlying demand could recover. The move highlights an unusual dynamic in the lumber market, where prices are rising even as broader demand indicators, particularly from housing, remain weak.

The supply squeeze has been driven by a sustained pullback in US sawmill activity. Output declined for a second consecutive quarter, while production capacity fell 6% from a year earlier, reflecting mill closures and curtailments as producers respond to a prolonged period of soft demand. That contraction in capacity means even modest upticks in buying activity can now translate into sharper price responses, since the industry has less spare capacity to absorb incremental demand.

Producers have moved to capitalise on the tighter supply picture, with lumber prices rising 6.1% from the previous quarter. Even so, prices remain 3.8% below year-earlier levels, underscoring that the current rebound is occurring from a depressed base rather than signalling a return to the stronger pricing environment seen previously. Buyer activity remains subdued, consistent with a market where demand has yet to meaningfully recover even as supply adjusts downward.

Trade dynamics are adding a further layer of complexity. British Columbia, Canada's largest lumber-exporting province, is actively seeking to expand shipments to China, as higher US import costs on Canadian softwood lumber have reshaped traditional trade flows. That pivot reflects the practical reality facing Canadian producers: with tariff and duty measures raising the cost of accessing the US market, diversifying toward Chinese buyers offers an alternative outlet for volumes that might otherwise struggle to find a home.

On the demand side, the picture remains challenging. Canadian lumber exports to Japan fell 27%, reflecting weaker demand from that market as well, while elevated borrowing costs, higher labour costs, and a weaker US housing market continue to curb demand for construction lumber more broadly. The combination of a shrinking supply base and persistently soft, though not collapsing, demand suggests lumber prices could remain volatile in the coming months, with any signs of a housing market recovery likely to have an outsized impact given how much capacity has already been removed from the industry.