Why Did Australian Timber Prices Fall During a Construction Boom?
Between June 2015 and June 2017, Australian MGP10 prices trended down in real terms in the middle of the most recent and prolonged construction boom. This trend apparently bucked conventional wisdom where prices increase in times of high demand. Three trends in the market were apparent which may explain this unusual event. They are:
– The increase in total DUA and DUC was being driven by apartment construction alone, as DUA and DUC in housing construction had shown a flat trend since the end of 2014 (Figure 1). Housing construction, not apartments, is where most timber is consumed.
– Fuel prices also declined significantly during the same period, reducing transport costs and allowing timber traders to decrease prices while still maintaining unit margins (Figure 1).
– Softwood timber imports declined in the same period, down 21% to mid-2017 (Figure 2). Lower prices would have pushed imports out of the market. As prices recovered, so did imports.