Lumber prices have raced to levels last seen at the tail end of the US housing boom, fuelled by supply cutbacks and a modest rebound in house construction.

CME May lumber futures yesterday touched $325.30 per 1,000 board feet, the highest level for a front-month contract since May 2006.

The surge is a delayed reaction to lower output and weak inventories up and down the supply chain.

Retail lumber yards, starved of credit and lacking demand from builders, have kept inventories lean. As a marginally stronger construction season begins, they have entered cash markets in search of wood, and futures prices have followed, according to Paul Court, a broker with FCStone on the floor of the Chicago Mercantile Exchange.

Mills have also sawn fewer boards in response to the recession and the historic collapse in housing construction. Dozens have shut down or reduced hours, and the output cuts last year began to bite. Lumber futures have risen 57 per cent in 2010 and more than doubled from early 2009.

"It is the supply side that is causing this increase, as opposed to demand," said Gary Vitale, chief executive of the North American Wholesale Lumber Association.

The framing lumber on which CME futures are based is mostly used to build houses.

US housing starts rose at an annual rate of 626,000 last month, up 20 per cent from a year ago but still below a 2005 peak of more than 2m.

The Oregon-based Western Wood Products Association expects that US lumber demand will increase by 6.1 per cent this year to 32.9bn board feet, reversing declines of more than 20 per cent in 2008 and 2009. Consumption will struggle to approach past levels, the association warned.

In the absence of strong regional demand, some Canadian mills have also boosted exports to China, said Shawn Church, editor of Random Lengths, an industry publication.