North America’s sawmills can’t keep up with demand, which has sent wood prices on a meteoric rise. Don’t expect new mills to start popping up though.
Executives in the cyclical business of sawing logs into lumber said they are content to rake in cash while lumber prices are sky-high and aren’t racing out to build new mills, which can cost hundreds of millions dollars and take two years to build from the ground up.
In doing so they are breaking with conventional wisdom in the commodities business, which states that the cure for high prices is high prices. Usually when prices for raw materials rise, refineries and smelters ramp up, farmers plant larger crops, wells are drilled, mines dug. New supplies flood into the market and prices retreat.
Home buyers and do-it-yourself-ers, who are paying more than four times the normal price for lumber, would like for that to happen. But they are flush thanks to historically low borrowing costs, rising home values and government stimulus. Demand has been unbowed by escalating prices.
Read the full story on the Wall Street Journal website here.