Lumber Price on Top in 2020
Most investors care little about commodity investments or only about some top volume products like crude oil or gold. The markets of less frequently traded materials are very volatile but offer high returns. A good example is lumber, the top commodity in the year 2020 on American commodity exchanges so far (December 4th).
Lumber jumped 67 percent this year, the S&P 500 stock index, 14, the Nasdaq 100 (technology shares), 41 percent. The Chinese Shanghai Composite, only 12 percent. When I see this data, I always have a strong desire to invest more in commodity markets. This asset class may have huge profit potential in the coming years. (Among others for inflationary risks.)
Why Did Lumber Price Jump So Much?
Lumber jumped because of the unbalance of supply and demand.
“Several major lumber mills cut back on their production when COVID-19 arrived in the United States earlier this year. Mill officials cited concerns of a worsening economy and the health and safety of their employees. But they didn’t foresee demand rebounding as quickly as it did. Demand for new single-family homes remains high, as sales rose 14 percent in June”–wrote Newsweek.
One reason for which the housing market remains on high levels is people wanted to move to better homes after the first coronavirus-wave, the quarantine. Outside of the city centers, houses with gardens. Another reason is, mortgage rates are at all-time lows. The Fed is supporting the economy with new easing steps this year. Also, the US raised import duties (customs, tariffs) on Canadian lumber a couple of years ago. This is reducing imports and causing more supply shortages.
Do-It-Yourself with Timber
Many people aren’t buying new homes, but the quarantines and lockdowns caused a spike in do-it-yourself (DIY) projects. Americans are purchasing construction supplies to improve their homes or gardens. Wooden stairs are repaired. They are paneling in the interiors, renovating the roof, if they are already at home, anyway.
More DIYers are doing projects like decks so they have a place to get outside during these troubled times. And restaurants across the U.S. are using more and more lumber to build outdoor seating and dining areas. (New England Building Supply)
Worth mentioning that the lumber price surge is also a long-term trend. As we see in the third chart, the price on the commodity exchange almost tripled in this period.
The Future of Lumber Price?
And the future? Impossible to predict. But if people continue to move from the big cities to the suburbs, to houses with gardens, the lumber demand may stay high. Interest rates can remain at similar super-low levels for many years to come. A risk factor maybe if the recession drags on. So, people will have less money to buy a new home or renovate parts of the old one.
Why Did Iron Ore Jump?
On the list of the top commodities this year, you see iron ore and steel also. The Chinese economy is recovering fast, growing steadily. That may be the main reason for the iron ore and steel price jump.
Iron ore prices for delivery to China hopping to highest in more than seven years. Top $145/metric ton for the first time since March 2013. Sparked by unprecedented demand from China, constrained supply from Brazil, and strained relations between China and Australia. (SeekingAlpha)
Why Are Uranium Stocks Rising?
Gold, Silver, Uranium Prices are not on the top, are on the list for comparison only. The Best Investment in 2020 Was a Yellow Substance–I wrote in April about uranium. It was a little early to say that. Uranium ore was declining slowly since then. But on December 4th, the Global X Uranium ETF (URA) jumped seven percent. This ETF contains uranium miner’s stocks. An interesting twist, it stays on my watchlist.
(Update: Uranium miners jumped last week because the US Senate and House revealed a “compromise version of the annual National Defense Authorization Act”. The bill provides for the military to “continue a policy that classifies the domestic supplies of uranium, graphite and lithium as vital to national security”–wrote ZeroHedge.)