• Wed. Jun 16th, 2021

There is a construction boom taking place around the world as governments look to build themselves out of the pandemic’s economic woes


May 15, 2021

There is a construction boom taking place around the world, as governments look to build themselves out of the pandemic’s economic woes.

Key points:

  • Iron ore and Lumber Futures hit record highs this week 
  • Timber supplies in Australia are very low and imports are falling
  • The federal government’s HomeBuilder Scheme is said to be putting ‘extreme pressures’ on building supplies

It has pushed the price of building-related commodities through the roof, with timber and iron ore — which is used for making steel — hitting record prices this week.

Iron ore surged to $US228 per tonne on Tuesday, as Chinese steel mills continue to ramp up production.

“That’s exactly $US173 a tonne more than (Australia’s) Treasury assumed when it calculated the 2021 budget deficit last year, so about as wrong as you can get,” said ABC finance presenter Alan Kohler.

Lumber futures skyrocket

During the week, lumber futures in the US broke a record, surging beyond $US1,700 per thousand board feet for the first time, a meteoric rise for a commodity that was sitting below $US400 this time last year.

The rocketing price is being driven by America’s housing boom but also appears to have accelerated in recent weeks as investors pile in.

Activity on the futures market has lumber’s price chart looking more like a cryptocurrency than wood.

According to the US National Association of Home Builders, the soaring lumber price could add an extra $US36,000 to the price of building an average single-family home.

What about Australia?

Timber prices in Australia are also up this year but for a variety of reasons.

Independent forestry consultant Rudolf van Rensburg said Australian softwood prices had increased between 5 and 15 per cent.

“Australia faces a situation where there hasn’t been any significant expansion of the softwood plantations since the 1990s, so the supply from current plantations is fairly static and demand is increasing with a rising population,” he said.

“With lumber prices in the US being very attractive, exporters are focusing on that market … and with freight [shipping] rates very high, it’s making the distant Australian market less attractive.”

Mr Rensburg said Australia traditionally imported about 20 per cent of its timber needs.

Timber has become a very hot commodity.(Supplied: Timberlink Australia)

The HomeBuilder effect

Speaking to ABC News Radio last month, Master Builders chief executive Denita Wawn said the federal government’s HomeBuilder Scheme had created a lot of work but had caused “extreme pressures in the supply chain”.

“We’ve got a [building] boom across the entire country which is very unusual,” she said.

“It’s putting a huge amount of pressure on the supply chain as whole, as not only Australia but the world is using housing to stimulate economies and there’s a world-wide shortage of key essential products.”

Mr Rensburg agreed HomeBuilder had “amplified” the demand for timber and that building costs would “obviously increase”, although “the cost of timber is a relatively small proportion of the overall construction costs [of a house]”.

It is estimated that up to 60,000 hectares of softwood plantations were lost during the Black Summer bushfires, which is another factor affecting supplies in Australia.

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