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.
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
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.
For March, the Home Builders Association Wood Commodity Index (Index) increased 2.4% to $450.46 per thousand with most items edging up. For the second month in row the National Home Builders Association/Wells Fargo Builder Confidence Index dropped, and one reason cited was the inability to secure financing and acceptable appraisals. The huge run-up in prices has started killing deals in the market, and this appears to be opening the door for softness in the market. A couple of key items in this month’s Index dropped in price.
The lumber portion of the Index increased a whopping 5.4% to $442.39 per thousand, pushed on strength in wide width pine and 2x4 shorter length dimensional spruces. 2x12 pine increased 11.1% to 12.9% (depending on length), while dimensional spruce increased 2.4% for longer lengths to 13.2% for more popular shorter lengths. 2x6 spruce was flat-to-down as the enthusiasm for it did not match the 2x4. The lumber markets are very high now, which has most dealers in a holding pattern on purchasing, as many believe the cliff could be around the corner. Until there is real concern over supply availability, expect most dealers to purchase “hand-to-mouth”.
The sheathing component in the Wood Index is showing signs of price fatigue, as it only gained $1.52 per thousand or a measly 0.3%. CDX pine plywood increased from 3.4% to 5.2% (depending on thickness) while OSB sheathing gave back $7 per thousand or 1.5% across the board. To see OSB sheathing mills give back money confirms there is a general softness manifesting in the market.
There are two warring factions in the wood commodity markets. First, the manufacturers and mills are pushing the notion that supply is very limited and shortages could be imminent. Second, there are the dealers who have seen this movie many times during this Great Recession--prices jump up quickly to only fall quickly. No dealer wants to get hung with huge amounts of overpriced inventories, especially when builders are beating them down for every nickel. This “just in time” inventory philosophy in itself puts pressure on supply and delivery.
My thoughts remain the same. Prices are too high and with appraisals tough to secure for financing, the market is probably eating its future demand. The Builder Confidence number indicates builders are seeing these prices with higher cost on the ground. Like some of our local builders have told me that in the last week, they have lost business to high costs; this is beginning to be a problem. Builders should be very careful on long-term bids and always ask for a closer look when the project time grows closer. Now is the time to have a price protection clause in your contract.
In other areas, roofing companies have announced price increases and metal stud companies are putting in place an increase in April. Fuel surcharges are being implemented by everyone, so there appears to be a big effort by manufacturers to firm pricing. I just don’t know if it is going to work in a market that is already too high.
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