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Posted on January 08, 2013 by RedBuilt

Pine_forest_in_Estonia In the last three months, lumber prices have risen to an eight-year high. The Wall Street Journal stated that prices of lumber for January delivery on the Chicago Mercantile Exchange (CME) reached their highest trading level since April 2005. “Prices have climbed nearly 40% since late September.” Three of the main factors for this increase include the increase in Chinese buying, recovery of the U.S. housing market, and the limitations of supply. Chinese Buying Increases BCBusiness explains that China’s demand for lumber picked up when the U.S. new housing market slowed down. “China surpassed the U.S. as the B.C. forest industry’s number one customer in May 2011.” Strong Signs for U.S. Housing “The Commerce Department reported new-home sales for November rose 4.4% from October to the highest level in more than two years.” New-home sales are expected to rise quickly to a stable growth. Decline in Supply When the U.S. housing market crashed, many lumber mills were taken out of production. The demand for lumber is increasing faster than production capabilities can supply. Additionally, throughout the last ten years several million acres of timber across the U.S. and Canada have been destroyed by the mountain pine beetle. Lumber mills in Canada have been able to salvage some of the beetle infested timber, but not enough to really dampen the loss. What Now? There are two main thoughts of what will happen to lumber prices. Some believe that lumber prices are going to rise quickly until production facilities catch up. Once production facilities are running at full capacity, it will cause an excess of supply and crash prices. The more popular opinion is that prices will continue to rise quickly for the next few months. Once prices are back to normal, price increases will follow a steady growth pattern.

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