The wood products industry is likely to see a cooling of market volatility in 2023 as demand slows due to inflation and interest rate increases, experts say.

Tim Borg, general manager at the Spokane offices of Texas-based supplier and manufacturer of structural building products company Builders FirstSource, says demand and pricing of wood products earlier in 2022 was fairly high, primarily due to slower manufacturing output.

“They just couldn’t manufacture enough product quickly enough,” Borg says. “Trucking would have been a bigger issue if there’d been more product to ship.”

Dustin Jalbert, senior economist for wood products at forest products commodities data and market analysis provider Fastmarkets RISI, says demand has begun to cool.

“A lot of that has to do with the Federal Reserve raising interest rates to combat inflation,” Jalbert says. “From a construction perspective, that’s cooled the housing market down.”

The price of lumber has decreased significantly since spring. According to industry publication website Trading Economics, lumber futures were at $391 per thousand board feet as of Dec. 5, down from a peak in March of about $1,450. Until recently, futures hadn’t been priced below $395 since June 2020.

“It’s a huge correction,” Jalbert says of the decrease. “Anytime we have these big corrections in the market, it tends to be painful for producers. Their costs don’t adjust as quickly.”

Jalbert says some Canadian producers already have shut down operations at some mills.

“It’s this weird dynamic where we had two to three years of record profitability, and now mills are seeing a situation where they’re making a little bit of cash, or they’re at break-even,” Jalbert says. “Especially in high-cost producing regions like the Pacific Northwest, mills are starting to have to manage and cut back on production to some degree.”

Jalbert predicts 2023 will see some demand return to the market as housing prices correct and the Federal Reserve either pauses or lowers interest rates. However, Jalbert expects lumber demand will decline by about 4%.

Borg says that he’s noticed consumers have become less confident as the market has changed over the course of 2022.

“They’re hesitant about moving forward,” Borg says. “It’s slowing the process down. But then, that’s what the Fed chair wanted when he started raising interest rates and said that we had to slow the economy down a bit.”

Spokane-based pulp and paper products maker Clearwater Paper Corp. says in its third-quarter report that net income was $21 million, up from net income of $2 million in the year-earlier quarter.

PotlatchDeltic Corp., the Spokane-based forest-products company, posted third-quarter net income of $46 million, down from the income of $65.7 million in the year-earlier quarter. In September, PotlatchDeltic completed its merger with Atlanta-based CatchMark Timber Trust Inc. in an all-stock transaction. Now, PotlatchDeltic owns nearly 2.2 million acres of timberlands, including 626,000 acres in Idaho.