Signals #21 – Lumber Mania

Overview

  • Price of lumber has skyrocketed during COVID-19 📈
  • Lockdown boredom and excessive cash stimulus in the U.S. inspired people to buy new homes, renovate old ones and work on DIY projects.
  • That caused severe lumber shortages as U.S. mills were caught off guard with almost non-existent inventories 😱
    • 40% of North American sawmill capacity shut down in 2020 because they feared a COVID-19 slowdown 👉 yeah, it never happened.

Opportunities

  • Create a digital marketplace for reclaimed lumber ♻️
    • Reclaimed lumber is popular for many reasons: it contributes to green buildings, looks unique and can be stronger than newly-cut wood.
    • See MaterialsXchange for an example of an online lumber marketplace.
  • Sky-high lumber prices create market gaps for other alternative building materials, such as steel, composites, concrete and even plastic.
  • Build lumber tracking dashboards 📊
    • Track prices of stock lumber at local stores.
    • Track availability of lumber at local stores.
    • Track prices of wooden consumer products.

How to launch

  • Build a web dashboard tracking lumber availability:
    • Start with local hardware stores in your area.
    • Negotiate a deal with the stores which gives you access to their inventory data, at least on a rough level. In turn you promote their lumber products when they have availability.
      • Add locations, prices, inventory levels, lumber types…
      • Add more stores over time.
    • For the customer the benefit is knowing where to drive to buy the lumber → time and effort saved.
    • Spread the word with contractors, hobbyists, anyone who needs lumber. Drive traffic to your website.
    • Monetize with ads or with a freemium model (partly restricted access to some data or a free trial period).

Cases

  • Sales of Trex’s composite decking alternative were accelerating already pre-pandemic:
    • High lumber prices have helped further supercharge Trex’s growth. The company’s stock price has vaulted 767% in the last 5 years 💵
    • As long as the lumber prices remain high, consumers are willing to consider other alternative materials to their DIY projects.
    • Other examples of alternatives to wood decking: Nexan Building Products (aluminium decks) and Envision Decking (composite decks).
  • Stock prices of lumber-related companies have soared in the last 12 months:

Companies

Forestry


Home builders


Alt wood products

Market Data

  • The price of 1,000 board-feet (MBF) of lumber increased a whopping +323% from 2020 to 2021. A peak of nearly $1,700/MBF was hit in 05/2021. ↗
    • Since then the price has come down to about $1,300/MBF, which is still ultra-high when compared to historical prices during 2000s.
  • Raising lumber prices have not resulted in higher profits for timber growers. A large surplus of trees remain. 🌲 Sawmills are the real bottleneck.
  • But sawmills are also starting to catch up: 1.4 billion board feet of capacity was added during the last 12 months.

Forecast

  • The craze for lumber is showing signs of slowing down in late May 2021. Future prices fell close to $1,200. 📉
  • Nevertheless, it seems that lumber will trade over $1,000/MBF for a large part of 2021. Some analysts predict a fall in prices after the next 18 months.
  • General consensus is that the prices will hold up for another 12-18 months so there’s still ample time to capitalize on this trend.

Resources

Takeaways

  • There’s a historical lumber price hike going on.
  • That creates a lot of opportunities for solutions that solve either the high price or availability problems: alternative building materials, tracking lumber availability, marketplaces for lumber products and smaller houses.
  • It’s hard to say how long the prices will stay up but the limited capacity of mills and shortage in housing are problems that are not solved overnight.

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Learn all this:

  • [Pro] How to create a digital marketplace for reclaimed lumber?
  • [Pro] A list of 15+ lumber companies, home builders and funds.
  • [Pro] Why are tiny homes attractive to consumers right now?
  • [Pro] Which are the best performing lumber stocks on the market?
  • [Pro] What is shortage economy and are we in it right now?
  • [Pro] What are commodity super cycles?
  • [Pro] Where are 3D printed houses being built next?
  • [Pro] How can you ride the lumber meme wave?

+ 81 insights more.