Lumber and its 2nd and 3rd derivative effects

Lumber has once again taken a dive, only after it recorded a second effort of doubling its price in a short order of time.

In fact, the price action in Lumber has been one of scarcity, distortion, speculation and extremes.

The rise in price has mainly been driven by a surge in homebuilding and renovation demand and a shortage of by-products such as plywood coupled with a major disruption in supply chains.

The sudden declines are a function of speculative excesses being corrected by a simple, honoured notion of mean reversion, which is quite a reliable pricing tool in commodity markets.

Who is affected by these gyrations?

Building product manufacturers, the forestry industry, timber merchants, the carbon sequestration industry, homebuilders, consumers and kitchen cabinet makers, to name several.

January 18, 2021

by Rob Zdravevski

rob@karriasset.com.au

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