More than 12,000 buildings have been burned by the Palisades, Eaton, and Hurst wildfires in Southern California, increasing the possibility of a spike in demand for lumber in the upcoming months and years.
“Typically, the rebuilding process following such events drives a significant demand for building materials, particularly lumber, given its foundational role in construction,” stated Michael Goodman, general counsel and director of finance at Sherwood timber, a supplier of building materials.
The “timeline for insurance assessments, debris removal, permitting, and rebuilding efforts,” according to Goodman, will determine how quickly the demand for building materials increases. According to him, it usually takes several months for the full impact to reach the market.
The California Department of Forestry and Fire Protection reports that as of one week after the wildfires in Southern California began on January 7, over 12,300 structures have been destroyed.
An estimated 10,000 to 20,000 truckloads of lumber would be needed to replace 12,000 structures, according to Goodman. According to Union Pacific, a 48-foot flatbed truck can transport 45,500 to 52,000 pounds of lumber. Although the Global Trade Network reports estimates ranging from 2,250 to 5,350 pounds per 1,000 board feet of newly cut lumber, the exact amount varies depending on the kind of tree.
Lumber for March delivery (LBRH25) (LBR00) settled at $585 per 1,000 board feet on the CME on Tuesday.
Greg Kuta, president and CEO of timber broker Westline Capital Strategies, stated that framing lumber and panels are essential components of the reconstruction process. “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.”
He stated that it may take “many months, if not years, to rebuild in a meaningful way, with critical infrastructure taking precedence over residential structures,” and that the need to repair will eventually force lumber prices to rise.
According to Dow Jones Market Data, lumber prices based on the most active futures contract have already surpassed 2024’s modest 1.3% increase, rising more than 7% so far this year.
However, prices remain well below their August 2022 intraday high of $712. The current smaller contract was introduced that year, and the legacy lumber contract was delisted.
According to Kuta, the incoming Trump administration’s potential to impose further taxes on lumber from Canada and Europe is the reason why lumber futures have risen 7% so far this year, not the wildfires in Southern California.
Last week, Donald Trump, who will take office as president of the United States on January 20, was cited as stating that the United States has “massive fields of lumber” and does not require lumber from Canada.
In the end, we have always needed and will continue to require Canada’s enormous and flowing “lumber fields” to meet our domestic housing needs. Westline Capital Strategies’ Greg Kuta
Trump has said that all imports from Canada and Mexico would be subject to 25% tariffs. According to Kuta, that would increase the overall cost of framing lumber for end users in 2025, on top of the taxes already imposed on Canadian timber exports to American markets.
Lumber grows in forests, not fields, Kuta added. “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,” Kuta said.
Long-term potential
“More long-term in nature,” Kuta stated, are any possible fire-related investment opportunities in the lumber sector. “The real, sustainable reason for prices to move higher is demand driven, and that’s highly unlikely in [the first quarter of] 2025.”
Following a brief increase in lumber prices due to the 2018 Camp Fire in Butte County, northern California, there was a “stabilization period as rebuilding efforts got under way,” according to Goodman.
He emphasized that certain building rules in Southern California, such as those pertaining to fire resistance, could affect the selection of materials. It might result in “diversified demand for engineered-wood products, siding and other specialized materials in addition to standard framing lumber,” according to him.
Kuta stated that the North American lumber market is still in a “oversupplied market situation, which has lingered since the end of the bull-market cycle in late 2022,” but that it is still too early to determine how much lumber will be required to rebuild what has been destroyed by the fires in Southern California. However, he stated that the excess problem has been much reduced by the continuous supply destruction among Canadian lumber producers over the past year, which has included several permanent mill shutdowns in British Columbia.
“We are much closer to supply/demand equilibrium heading into 2025,” Kuta stated.
Opportunities for demand
In preparation for the spring building season, the industry usually prefers to purchase lumber in the fourth quarter or the first half of the first quarter, he said.
“In anticipation of higher highs in lumber prices in 2025,” Kuta added, someone who needs lumber and has the financial means to purchase and hold it is likely “incentivized to own the wood.” According to him, timber prices normally bottom out around mid-October or mid-November after peaking seasonally and historically between mid-February and mid-March.
In addition to pushing the seasonal high further out into this year, he said the fires might prolong that seasonal price peak into mid- to late 2025.
As for the timber industry as a whole, Kuta stated that “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.”
Among the businesses to take into account are timberland company Weyerhaeuser Co. (WY), lumber suppliers Canfor Corp. (CA:CFP) and West Fraser Timber Co. (WFG), and building-material suppliers Builders FirstSource Inc. (BLDR) and Boise Cascade Co. (BCC), according to Kuta, who stated that he does not own any stocks in housing or forestry companies.
When the demand for organic housing does increase, timing will become more crucial, he added. The question is whether that occurs in the second or third quarter of this year, or if the “green shoots of demand wait until 2026 to surface.”
There’s probably a “significant potential for investors in the housing sector in 2025 and beyond,” Kuta stated, “but you have to have a longer time frame from an investment standpoint.”
He stated that the realistic assumption for demand resulting from the destruction in California is “eight to 12 months out, based on on insurance claims, government red tape, and lack of construction labor.”
