b'Impacts on Lumber Supplies Canada SoftwoodsGiven that the wildfires are destroying forestlands, the questionButthePPIforsoftwoodlumber,importantinresidential arises whether they will have an adverse effect on the supply ofconstruction,increased3.9%inJune,representingthesecond timber and, therefore, provide a boost to the price of lumber. Theincrease over three months. That contrasts to decreases in prices answer is yesto a certain degree. Lumber prices have ticked upfor gypsum, which also fell in April and May, and steel, which fell in recent weeks, but its questionable whether the phenomenon will0.6% in June, after a four-month streak of higher prices, while con-continue. Thats because some prognosticators foresee a down- crete prices increased 0.5% in June. Freight prices, its also worth turn in housing construction, and, if that comes about, the supplynoting, fell in June across the board, for truck, rail, and ocean. deficit may not be so egregious compared to demand. Canada supplies 80% of U.S. softwood lumber imports, accord-Besides the destruction of timberland, the paucity of supply wasing to Natural Resources Canada, a Canadian government depart-also related to the closure of sawmills. Resolute Forest Productsment. During the first quarter of 2023, the provinces of Alberta and Inc.,forexample,aMontreal-basedcompany,temporarilyshutQuebec accounted for 44% of total lumber shipments and 45% of down four of its sawmills in Quebec due to nearby fires and relatedtotal productionand those two areas have been the hardest hit by log shortages. Resolute also paused harvesting activities in areaswildfires. In other words, the wildfires are affecting a meaningful near the wildfires. share of Canadas timber harvest.Thats been true elsewhere in Canada as well, according to theThe price of lumber continued to rise through mid-July, accord-FEA, which reported that a scattering of mills closed temporarilyingtoTradingEconomics,whichreportedpricesatthatpoint and that the fires altered some harvest plans. 33.5%higherthaninearlyMay.Pricesretreatedsomewhatin In late July, Statistics Canada (StatCan) reported that construc- August, because, according to the Madison Lumber Reporter, At tion costs for residential building in a composite of eleven metro- this time of year it is normal for construction activity to slow down politan areas climbed 7.5% year-over-year in the second quarter ofas folks take off for the last vacations before Labor Day and back 2023, led by a 13.0% increase in Toronto. Non-residential buildingto full-time work in September. construction costs, meanwhile, increased only 1.5% in the secondBut as of the end of the first week of September, lumber prices quarter,suggestingthatthepriceoflumberfactoredintothewere still in retreat, a sign of a possible slowdown in the residential increase in residential building costs. construction sector, a phenomenon already being seen in Canada. Further proof comes from the National Association of HomeThe signs are promising for the Canadian economy overall, but Builders, which reported that, in the U.S., 2023 has seen a con- the construction industry faces lingering challenges, said Patrick tinuing trend of slowing price growth that began in 2022but thatRyan,anexecutivevicepresidentatLinesight,aconstruction trend did not apply to lumber. NAHBs Producer Price Index (PPI)consultancybasedinNewYork.Theconstructionindustryis gained 0.5% in the first half of this year and has not increased 1%expected to shrink by 5.2% in 2023 as the residential sector has or greater in any month since March 2022. declined more than expected. ThegrowthratesoftheindexforfinaldemandgoodshasAs for lumber prices, they achieved stability earlier this year after slowed 12 consecutive months, which hasnt occurred since thetwo years of volatility. Prices picked up due to the wildfires, said inception of the series, noted David Logan, director of tax andRyan. Prices may appreciate slightly in the coming months, but trade policy analysis at NAHB. The PPI for goods inputs to res- the trend in coming quarters looks to be one of weakness due to idential construction, including energy, has decreased 3.6% overthe housing downturn.the past 12 monthsthe largest 12-month decline since October 2009.Back to Contents THE UNCONTAINED 37'