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.