Over the last 30 days, your Home Builders Association Wood Commodity Index (Index) has been on a roller coaster with prices initially heading straight down and then over the last two weeks reaching a plateau followed by an upward movement. The Index dropped to $315.73 per thousand, which is down 3.3%; however, it appears a bottom is being cemented as the will of the market appears to have changed upward. The variables remain to be low field supply versus peeks in demand.
The lumber portion of the Index dropped 1.5% to $342.39 per thousand as western spruce studs dropped 6.3%-9.2% but those decreases in prices were offset by an increase in longer lengths in dimension spruce. The more popular sizes were up 3.7%-6.8%. Pine dimension lumber in wide widths headed downward 2.3%-5.9% while narrow pine widths increased 1.1%. Typically, these types of increases in the more popular widths and sizes are the first signs of a general increase as pressure mounts from dealers restocking inventories.
There was a 4.8% decline in the sheathing portion of the Index as OSB sheathing dropped $20 per thousand over the last month. Most of the declines in OSB occurred during the first two weeks of this pricing cycle. For the most part, OSB pricing has stabilized and increased in some areas of the country over the last couple of weeks. CDX pine sheathing was flat to minimally down--$5 per thousand--as the harsh reality of supply issues began to creep back into the market. CDX pine plywood is normally the driver in the entire sheathing market and it is significant that those prices have firmed.
There is a simmering, growing angst among dealers and builders that supply could be an issue in the next few months. An erratic hurricane season, pockets of increased building (like in Florida), extremely wet weather in the South hampering logging and lack of adequate trucking capabilities has many on the edge of their seats. This could be the first signs of a general boosting of inventories on the ground, which in itself could spur pricing forward. Hand-to-mouth inventories by dealers and suppliers could lead to someone not eating.
Most other building commodities are static in price as there is no real impetus moving the market. Shingle manufacturers have announced a price increase for the first of August, but there is some debate whether it will stick or not--I guess it depends upon the weather. In regard to side product issues, door and window manufacturers are pushing for low-single-digit increases, which could stick given the issues with supply.
It appears the wood markets have hit bottom and there could be an upward movement over the next few months. Demand bolstered either by a hurricane or increased housing starts will determine as to how high and how fast. Builders should protect themselves with a price escalation clause in their contracts and, most importantly, have contract and bid prices with “good-thru” pricing dates.
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
Since mid-May, your Home Builders Association Wood Commodity Index (Index) dropped $60.17 per thousand (or 15.6%) as supply outpaced demand and the commodity market adjusted from unsustainable levels. However, the Index remains $12.80 per thousand (or 2.8%) higher than last June. While the month-to-month drop is significant the market is still at levels above the Great Recession. It appears this period in the market is more of a break than a collapse.
The lumber portion of the Index dropped $38.35 per thousand (or 9.9%) as most decreases were across the board. The 2x4 stud material stayed in the single digit drops while construction dimension in both pine and spruce traded down from 9.7%-12.1% with wide widths giving up more. The lumber market pricing is trying to form a bottom and it is hard to imagine the market dropping lower than last year’s benchmarks.
CDX plywood and OSB sheathing took significant hits in pricing as available wood was prevalent throughout the supply chain. The sheathing portion of the Index dropped $76.48 per thousand (or 19.7%) with thicker panels dropping less. It appears mills are jockeying to use their annual summer maintenance shutdowns to firm the markets.
The biggest problems in the supply business at this moment is shingle pricing, which is scheduled to go up the first of August, just in time for hurricane season, and prompt availability of windows with extended lead times due to fewer manufacturers. However, this is subject to change for two primary reasons:
These two factors are why these markets remain volatile. This period is what I call a sucker’s market. Builders will bid projects based on these numbers to get jobs and then two months later when the job starts, pricing is much higher. Be sure to protect yourself with price escalation clauses--don’t trust today’s prices.
For May 2013, your Home Builders Association Wood Commodity Index (Index) is in the midst of correcting itself, as a softness has permeated the market, which many experts consider only temporary. Since our mid-April Report, the Index has dropped 11.8% to $438.51 with double-digit decreases common throughout most species. For the last several months, I have been warning that the markets appeared to be overheated, and this pullback is no surprise to most veteran commodity traders.
Just like in a rising market, a falling market is fraught with challenges. It was best put into perspective by a trader who said a falling market is like “catching a sharp knife.” It appears the corrections are coming to an end as the decreases in the last week or so in sheathing products shrunk as mills stiffened on pricing. Whether it is a buying opportunity or not is probably irrelevant because most businesses are still honoring the royalty of today--cash is king.
Housing starts were released last week, and housing got a bloody nose. Total starts in April dropped 16.5% to 853,000 with single family dropping 2.1% and multi-family dropping a whopping 38.9%. The spinners of housing news quickly point out that most of the decline was multi-family, and I am pointing out that most sectors declined.
If the country is indeed in a bull housing market these drops should not have occurred. Over the last few years, we have all seen this movie--a strong early spring start that turns into a summer collapse. It remains to be seen if this year will be a rerun; however, no one in housing likes the current “movie trailers” played last week in housing starts.
The lumber composite of the Index dropped 11.2% to $386.06 per thousand, as short-length 2x4 spruce gave up a few dollars less than the average while 2x12 pine added a few dollars more. It appears the supply side of the equation is tightening up a little. If summer housing numbers improve, expect a firming of numbers.
The sheathing portion of the Index dropped 12.3% to $387.27, as CDX pine plywood products finally started to participate in the correction. On average, sheathing lost about $54 per thousand across the board. It appears OSB sheathing is probably close to its bottom as that pricing has become flat over the last ten days. CDX pine may move a little more; however, in my view, CDX still has the biggest challenges in the supply side.
Weather could potentially be a real factor in the market. A late spring of tornadoes in the country is creating real devastation, which may bolster sheathing pricing, and will definitely keep roofing pricing firm-to-up. Then of course, June starts hurricane season and in a few months prices could easily be at higher levels.
My advice to builders is simple: As suppliers replenish inventories prices should come down--enjoy the brief moderation in price. Prices are still up for the year and the overall feel by most experts in the market is that pricing will continue to increase in the second half of 2013. Quoting today’s numbers for projects beginning in September and October could be very risky--be very careful and protect yourself.
The Home Builders Association Wood Commodity Index (Index) for mid-April decreased 2.7% to $438.51 per thousand. The Index primarily pushed downward late in the second week of April as the world’s commodity markets sagged and investors grew more uncertain in the sustainability of the recovery. Oddly, the downward push in prices occurred the same week in which the United States Census Bureau announced housing starts had finally reached the plus-million yearly milestone in nearly five years. Then again, who can explain the rationale in many sectors of the building material marketplace?
In the dimensional lumber composite of the Index, pricing dropped 1.8% on significant drops in longer length spruce items and wide width pines. The lumber composite dropped to $434.56 per thousand. Oddly, short length spruce such as studs and 2x4-8’/10’ spruce increased in price from 2.2% to 12.1%. Little doubt though, the lumber composite was in a downward trend.
The plywood composite of the Index is a tale of two products--OSB sheathing and CDX pine plywood. OSB Sheathing dropped $40 per thousand in the last week primarily due to weaker order files and more production coming on line. CDX pine plywood increased $40 to $75 per thousand as demand outstripped production. Overall, because of the weight in sales of OSB sheathing, the plywood composite dropped 3.3% to $441.46; however, the impact of the loss of the Georgia-Pacific mill in Hawthorne, Florida is really becoming very evident.
One lumber expert told me that he expects lumber and plywood to take a short breather in price increases, but noted the huge uptick in housing starts were being driven by multi-family projects. His prediction is that huge block buys to cover these projects will propel pricing higher in May. The issue for many suppliers and dealers is they do not want to buy heavy if, indeed, the market is correcting.
Frankly, my crystal ball is busted, but my guess is the market has more downward risks because of the overall decline in world commodity pricing. I also believe that the markets had gotten over-baked and the high pricing was beginning to kill building projects.
The biggest mover in other building products will probably be roofing shingles. Hail storms in the South and increased demand is pointing the way toward tighter supply and higher prices. Rainy season is good for shingles, and it appears the South is having a much wetter spring.
My advice to all--be careful in a dropping market to not buy high and not quote low. If, indeed, the market turns back up with heavy multi-family projects, buying a long-term quote at today’s numbers could be costly.
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