Here’s how much lumber Southern California will need to rebuild after the wildfires

The Palisades, Eaton and Hurst wildfires in Southern California have destroyed more than 12,000 structures, raising the likelihood of a spike in demand for lumber in the months and years ahead.

The rebuilding process after events such as these “typically drives a significant demand for building materials, particularly lumber, given its foundational role in construction,” said Michael Goodman, director of finance and general counsel at building-materials wholesaler Sherwood Lumber.

Demand for construction materials will “undoubtedly rise,” but the pace will depend on the “timeline for insurance assessments, debris removal, permitting and rebuilding efforts,” Goodman said. Historically, it can take several months for the full impact to hit the market, he said.

The Southern California wildfires started on Jan. 7, and as of a week later, more than 12,300 structures had been destroyed, according to the California Department of Forestry and Fire Protection.

Replacing 12,000 structures would require an estimated 10,000 to 20,000 truckloads of lumber, Goodman said. A 48-foot flatbed truck can haul 45,500 to 52,000 pounds of lumber, according to Union Pacific. The number of pounds per 1,000 board feet varies by tree species, but the Global Trade Network has figures ranging from 2,250 to 5,350 pounds per 1,000 board feet of freshly cut lumber.

On the CME, lumber for March delivery LBRH25 LBR00 settled Tuesday at $585 per 1,000 board feet.

“Framing lumber and panels are critical pieces of the rebuilding puzzle,” said Greg Kuta, president and chief executive officer at lumber broker Westline Capital Strategies. “The biggest hurdle will be how quickly insurance and regulation can be cleared to begin the rebuild process, along with a finite labor pool to draw from within the home-building industry.”

It may take “many months, if not years, to rebuild in a meaningful way, with critical infrastructure taking precedence over residential structures,” he said, adding that at some point, lumber prices will rally because of that demand to rebuild.

Lumber prices based on the most active futures contract have climbed by more than 7% so far in the new year, already outpacing 2024’s modest 1.3% rise, according to Dow Jones Market Data.

Prices, however, still trade far below their record intraday high of $712 in August 2022. That year, the legacy lumber contract was delisted and the current smaller contract was launched.

Kuta said the reason lumber futures have gained 7% so far this year is because of the risk of additional tariffs being levied against Canadian and European lumber by the incoming Trump administration, not because of the Southern California wildfires.

Donald Trump, who be inaugurated as U.S. president on Jan. 20, was quoted last week as saying that U.S. has “massive fields of lumber” and does not need Canada’s lumber.

Trump has said he would levy tariffs of 25% on imports of all goods from Mexico and Canada. That would be on top of duties already in place on Canadian lumber exports into U.S. markets and would make aggregate framing-lumber costs more expensive for the end consumer in 2025, Kuta said.

“The bottom line is that we need Canada’s vast and flowing ‘lumber fields’ to supply our domestic housing needs — always have and always will,” said Kuta, who also pointed out that lumber grows in forests, not fields.

Long-term opportunity
Any potential fire-related investment opportunities in the lumber market are “more long-term in nature,” Kuta said. “The real, sustainable reason for prices to move higher is demand driven, and that’s highly unlikely in [the first quarter of] 2025.”

The 2018 Camp Fire in northern California’s Butte County resulted in a short-term spike in lumber prices, followed by a “stabilization period as rebuilding efforts got under way,” Goodman said.

He pointed out that Southern California has unique building codes, including fire-resistance requirements that may influence material choices. That could lead to “diversified demand for engineered-wood products, siding and other specialized materials in addition to standard framing lumber,” he said.

It’s still too early to know how much lumber will be needed to rebuild what has been destroyed by the Southern California fires, Kuta said, adding that the North American lumber market is still in an “oversupplied market situation, which has lingered since the end of the bull-market cycle in late 2022.” However, ongoing supply destruction among Canadian lumber producers over the last year, with a number of permanent mill shutdowns in British Columbia, has significantly narrowed the oversupply situation, he said.

“We are much closer to supply/demand equilibrium heading into 2025,” said Kuta.

Demand prospects
Typically, the industry likes to procure lumber in the fourth quarter or the early part of the first quarter in anticipation of the spring building season, he said.

Someone who needs lumber and can afford to buy and hold it is probably “incentivized to own the wood in anticipation of higher highs in lumber prices in 2025,” said Kuta. Seasonally and historically, lumber prices peak from mid-February into mid-March and typically bottom out around mid-October into mid-November, he said.

The fires may push that seasonal price peak into mid- to late 2025, and the seasonal high could be pushed further out into this year as well, he said.

Looking at the bigger picture for the lumber market, Kuta said, “if one believes that interest rates will gradually moderate lower, we as a nation [would still be] woefully underbuilt and in need of new residential housing.”

Source:  msn.com