The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for October 2018 cratered 16.4 percent to $347.73 as the hurricane bounce from the prior month quickly deflated. This may be wood commodity history in that CDX pine and OSB sheathing prices declined on the heels of Hurricane Florence, between the threat and devastation of Hurricane Michael. This is stunning and probably speaks volumes to the overall deterioration of the commercial and residential construction markets.
Rising costs, labor costs, tariff issues, and rising interest rates may be causing more damage to the construction industry. Builders should look at real demand and job growth. No doubt—something is amiss in the construction markets.
The dimensional wood portion of the Index declined 15.6 percent as dimensional spruce retreated $80-$115 per thousand or 20 percent plus. Spruce studs were less affected but still had significant declines in the mid-teens. Indications are that there is a lot of wood heading this way without enough buyers. The European Spruce brokers may be hit the hardest.
Normally the threat of a major Category 4 hurricane, not to mention it actually hitting, would artificially pump up the wood sheathing markets. On the contrary, Hurricanes Florence and Michael failed to move the needle. Since mid-September, OSB pricing is down $75 per thousand (21.6-24.2%) and CDX pine plywood is down $30-$55 per thousand. This is something we’ve never seen before—since this Index began almost 30 years ago.
These huge declines in the wood commodity markets could be indicative of the overall health of the construction markets—this should concern commercial and residential builders. If these hurricanes could not move the pricing meter, there is little that could happen between now and year-end that could do so, except for a huge construction boom, and there appears little chance of that.
Expect pricing to settle more and hover in a range much lower than the first of the year. Although this report is good news for pricing, it could be bad news for overall demand for the winter—everyone should be careful.
Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (www.romaclumber.com), and he is a former President of the Southeast Mississippi Home Builders Association, and past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at
The commodity market’s hard landing in September got a bounce thanks to a Hurricane named Florence. The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for September 2018 increased 3.5 percent to $416.10 per thousand, primarily on the strength of the sheathing portion of the Index, because of the hurricane. At this time, it appears the wood markets will be hard-pressed to continue this upward momentum without additional hurricane activity to bolster housing activity.
The dimensional lumber sector of the Index was down 1.1 percent as demand faltered and attention turned toward the weather and unimpressive housing numbers. 2x4 pine was up double digits, probably because of truss plants loading up. 2x6 spruce added almost 3.0 percent because of demand; however, the rest of the dimensional lumber struggled to stay par with most dropping in price. Wider width pines had pricing drop from 4.6 to 6.7 percent while dimensional spruce was mixed depending on length. Lumber needs housing demand to increase to boost these prices systemically.
The sheathing portion of the Index shows the knee-jerk reaction to a hurricane. CDX pine added $35 to $50 per thousand ($1.50 per sheet) while OSB sheathing on average increased $23 per thousand (74-cents per sheet). Unless more hurricane threats materialize or the damage in the Carolinas becomes more substantial, these markets will probably retreat by mid-October.
Builders should be wary of tariffs. A lot of mouldings and jambs (especially in Florida) are imported from China as well as fasteners and parts to build various items for the home. A threatened 25 percent tariff in the third quarter on Chinese products will have an immediate impact on pricing and possibly supply. In the last half of 2018, tariffs may pose a greater threat to pricing stability than storms.
Builders should put a price adjustment clause in their contracts, and language specifically noting tariffs may be a good idea. Most builders and few suppliers have the ability to swallow 25 percent tariffs. Watch Twitter or the business news to see what happens.
The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for April only increased 1.0 percent to $486.84 per thousand, which is a marked improvement compared to increases of 11.1 percent and 5.5 percent over the last two months. The decrease in the rate of inflation in the wood commodity markets is significant and may indicate the markets are topping out or the housing demand equation is faltering. My belief is that both scenarios could be influencing the market.
Winter continues to hang on and record snowfall in April in the Midwest bolsters the excuse makers for housing demand that the spring building season has not kicked off for our peers up North. While spring has not been the warmest, there has been plenty of warmup across the nation and the weather has not been to a point of shutting down willing production.
The dimensional portion of the Index increased a measly 0.4 percent to $535.38 per thousand as 3.2 to 5.2 percent declines in 2x12 wide-width pine and a 4.5 percent drop in 2x6-16 spruce offset across-the-board modest increases in dimensional 2x4 spruce. 2x4 spruce increased 2.0 to 8.7 percent depending on the popularity of the length. Spruce studs were mostly flat to up slightly for the wider widths. There is little debate that pricing momentum in the wood dimensional markets has slowed.
The wood sheathing portion of the Index increased 1.5 percent to $450.58 per thousand on the strength of OSB sheathing. Over the last 30 days, OSB sheathing added $23 per thousand, or 74 cents per sheet, which is about 6.0 percent more on average depending on thickness. CDX pine retreated in price $35 per thousand, or $1.12 per sheet, but the weight of sales in favor of OSB kept the Index up. Typically, CDX is the market leader in sheathing with OSB following suit. It will be interesting to see if OSB sheathing will sustain its move in the opposite direction.
The theory of depressed lumber sales in the northern region is about to really be tested as late spring and early summer are upon the nation. I contend that while the weather has not been ideal over the last month, it hasn’t been shut-down weather either. If warmer weather does prop up wood demand, expect pricing to increase. Otherwise, pricing will probably remain flat to down depending on the production. Keep in perspective the markets are high and that should keep movement narrow.
Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (www.romaclumber.com), and he is a former President of the Southeast Mississippi Home Builders Association, and past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at to=
Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for May came in surprisingly strong with a 7.7 percent increase or $37.34 per thousand. The one percent respite in April did not carry over into May and it appears the “Great Price Run” of 2018 continues. The warmer weather in the North coupled with relentless trade instability and trucking shortages are playing havoc on the wood commodity markets. Some traders are starting to worry about supply and on-time delivery.
The dimensional lumber portion of the Index increased a solid 9.8 percent with all lumber sizes and grades moving upward. Dimensional spruce jumped $65 to $82 per thousand while most studs added $40 plus. Tighter availability from Canada may force builders to move from select spruces to hemlock, and the price is reaching a point in which European wood may be more affordable and available. The supply-and-demand equation is out of whack and most of the problem is not driven by demand.
The sheathing portion of the Index was a little more stable; however, both OSB sheathing and CDX pine plywood added $25 to $35 per thousand—that is almost one dollar per sheet. Some OSB mills are off the market and most others are struggling to find trucks to move loads, especially into Florida. Higher prices and longer lead times are forcing more inventory on the ground, which in tandem is burning through cash flow.
Builders need to forecast needs with their suppliers and increase prices on projects, because the signs of pricing weakness have not entered the market. If the northern states continue revving up business there could be little break from a hurricane season, which appears to be active. In short, the pieces are in place for this run to continue.
One caveat will be crossing the affordability line for some projects. If costs continue to rise unabated, expect projects to be canceled. If this occurs that could slow down this run. A lot of “ifs” are in this forecast, because no one really knows what is going to happen. There are too many variables—demand, trucking, tariffs and supply. Hang on! It could get a little bumpy.
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