As is evident from the chart, lumber prices are at multi decade highs, with the PPI index for lumber prices running sharply higher ever since the pandemic began. This seems to be a consequence of a booming housing market coupled with soaring levels of home renovations and DIY improvement projects.

However, as with other commodities facing Covid related disruptions, we must ask: what about supply?

It turns out that the US lumber industry is facing the same kind of supply related disruptions due to Covid. Producers cut back on their levels of production at the beginning of the pandemic in anticipation of falling consumer demand. Lockdowns were, and still are, extremely detrimental for economic growth after all.

However, demand for house building, new or renovated, did not tank. This can also be observed in the chart above, where the index dipped slightly at the beginning of 2020, before embarking on its meteoric rise. This is in sharp contrast to oil and copper, both of which suffered major price falls before bouncing back with a vengeance.

On top of demand staying strong, supply chains were also disrupted, negatively affecting delivery times, the natural result of which is even more upward pressure on prices, and the chart we see today. Of course, all of this is strongly related to demand for housing, specifically new housing, in the US. 

Here, we see the all too familiar Covid blip, with a sharp drop in new units being constructed during the initial lockdowns. Construction then came roaring back, pulling lumber prices along with it. This strength in new housing construction is corroborated by the bullishness in the general US housing market, with the Case Shiller Index moving higher during the course of the pandemic as well.

All of which begs the question, how is this possible?

Mainstream narratives attribute this to the massive amounts of both fiscal and monetary stimulus pumped into the system. But we know that QE does not work the way people think it does, which means that house prices are not higher because of the fabled “flood of liquidity”. Instead, QE has affected house prices by lowering interest rates, which has resulted in lower mortgage rates.

To be concluded…