Lumber prices keep climbing
Housing starts are expected to rise in the next few years with some predicting double-digit growth. But a series of natural disasters in the western hemisphere – a series of hurricanes in the South, an earthquake in Mexico, and forest fires in California could push high lumber prices even higher.
According to the National Association of Home Builders, OSB increased 4% in September and has risen 19% in the past year. Since January 2017, the price of OSB has soared 38%. Softwood lumber prices actually fell nearly 1% in September, according to the Bureau of Labor Statistics. But as of October, lumber prices sit as much as 36% greater than October of 2016.
Additional pressure was put on the lumber markets due to the expiration of the Softwood Lumber Agreement extension between the U.S. and Canada as uncertainty on the level of duties and tariffs affected Canadian mill pricing in the first half of the year. Mid-year, the trade issues materialized into a countervailing duty and anti-dumping duty which put prices on the upward momentum starting early in the first quarter. The impact is estimated at 20% to 30% or greater, according to Duncan Facey, vp of forest products at LBM Advantage, the New Windsor, N.Y.-based LBM buying group
LBM Advantage continues to monitor the situation, forecasting increased housing starts and, perhaps, increased LBM prices.
“The market has been on a firm footing all year. We were projecting prices to be higher going into the year due to the housing market strengthening and a strong view that supply and demand had come into fair balance over the last two years,” Facey said.
LBM Advantage keeps abreast of market, mill and pricing information for the benefit of its members. The buying group speaks to its major producers daily while maintaining steady communication with its members to understand their requirements, including finding supply at competitive prices, Facey said.
According to Matt Harrigan, spokesperson for The Home Depot, the retailer has more than 200 stores located in areas that were impacted by natural disasters in recent months, including Puerto Rico and the U.S. Virgin Islands. “We are certainly seeing high demand for plywood lumber products,” Harrigan told HBSDealer. “But we have been able to replenish our stores right away.”
“Our prices will go up and down with the market, but we operate differently in disaster areas,” Harrigan said. “We freeze the margin in impacted areas and not just commodities.” The Home Depot actually freezes prices prior to a state of emergency being declared and leaves prices in place for roughly 30 days afterward, according to Harrigan.
Do it Best Corp., the Fort Wayne, Ind.-based co-op has been working with its suppliers to ensure members don’t see shortages of needed inventory. Gary Nackers, vp of LBM for Do it Best, said the buying group has witnessed varying needs and pricing impacts in each community hit by disaster.
“In Texas we think the categories that will be most affected are going to be drywall, insulation, and molding. We probably won’t see as big an effect on dimensional lumber or panels,” Nackers said. “Florida is a little different where there was more wind damage.”
Robert Dietz, chief economist of the National Association of Home Builders, told HBSDealer that he had hoped the softwood lumber dispute would have been settled months ago. But he also has hope that something will be worked out in early 2018, resulting in calmer pricing.
“We believe that some type of agreement will be worked out in the early part of next year,” Dietz said.
In the meantime, 2018 could bring supply shortages and labor shortages to a housing market that is expected to sizzle.
“We do fundamentally believe that supply and demand will remain in better balance and we won’t return to recession level pricing any time soon. The impact of the fires and overall shortages in Canadian fiber are a significant long-term challenge to the industry,” Facey said.