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February 1994, Vol. 117,
No. 2
Marcus Shull and Lisa Zager
P rice trends in the international softwood lumber market are currently the subject of much debate. From 1987 through 1993, volatility in this market was unusual, with prices influenced by a variety of factors. From 1987 to 1992, prices were influenced primarily by forces traditional to the softwood lumber market: world economic conditions, seasonal factors, and weather patterns. However, starting with the final quarter of 1992 and ending with the first quarter of 1993, prices responded significantly to the added influence of nontraditional factors, including environmental issues and trade disputes. Paired with these nontraditional factors, economic forecasts during 1992-93 led to speculation within the market that resulted in large increases in price. the aforementioned debate centers around whether the large price increases in 1992-93 were attributable mainly to traditional or to nontraditional events facing the U.S. softwood lumber industry.
Although the effects of nontraditional events began to influence prices only during the last quarter of 1992, rising environmental concerns, including issues surrounding the protection of the northern spotted owl, have placed a strain on the supply of softwood lumber since 1987.1 During 1991, another nontraditional factor was introduced when the U.S. Department of Commerce began a countervailing duty investigation into the Canadian softwood lumber industry to determine whether Canada was subsidizing its softwood lumber exports to the United States.2 This investigation resulted in an import duty that added to uncertainty regarding prices in the U.S. softwood lumber market.
In addition, the industry was bolstered by forecasts of an economic recovery for 1993, both at home and abroad, which meant that there would be the potential for a substantial increase in demand for softwood lumber and lumber products. Expectations surrounding this economic recovery set it apart from upswings in previous periods. Supply restrictions, coupled with an expected increase in recovery-driven consumption, stimulated a great deal of uncertainty and speculation in the industry. This speculation spawned frantic buying in the softwood lumber market, which drove prices upward. These nontraditional factors-environmental issues, trade disputes, and the expectations surrounding the 1993 economic recovery-overwhelmed traditional market events and led the softwood lumber industry toward an unprecedented rise in prices from the last quarter of 1992 through the first quarter of 1993.
This excerpt is from an article published in the February 1994 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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Footnotes
1 See A Chronology of Key Actions Associated with the
Northern Spotted Owl, Old-Growth Forest Issue, adapted from
testimony presented to the Subcommittee on Forests, Family Farms,
and Energy by the Bureau of Land Management, March 1992
2 "U.S. Imposed Lumber Duties," Random Lengths, October 4, 1991, p.1.
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